by Mr. A.
Srinivas
Builders / promoters
- by no means famished like Oliver Twist - are always asking for more. Their
earlier clamour, before this year’s Budget, was for infrastructure status for
housing, which would allow them a 100% cent profits deduction for ten years.
The Finance Minister
Mr. P.Chidambaram did not fall for this one, but instead continued with demand
- side incentives.
He allowed a Rs. 1
lakh deduction for first - time house buyers whose loan was less than Rs. 25
lakh. This is in addition to existing tax deductions for home buyers, and
priority sector status for housing loans below Rs. 25 lakh.
These incentives, as
well as hard-sell of retail housing loans, has kept the sector growing at a
faster rate than the rest of the economy.
Affordable Housing..!
Do we need to top
this up with a supply-side boost for ‘affordable’ housing -- placing projects
under Rs. 25 lakh in the ‘priority sector’ lending category?
The housing market is
driven by malpractices rather than the textbook logic of supply and demand.
Therefore, absurd as it may seem, an increase in supply of affordable housing
in such a market is likely to further drive up housing prices.
People do not buy
houses; they ‘invest’ in them, with the support of banks. A house is viewed as
a high-yielding ‘fixed deposit’ like none other.
As more ‘affordable’
houses - if Rs. 25 lakh is indeed to be considered affordable - come up around
us, the stock of empty but sold homes will keep rising, as in the Rs. 50 lakh
and above category.
The prices of
‘affordable’ homes will then increase at a higher rate than at present, turning
the logic of supply & demand upon its head..!
True, steel &
construction activity will revive, generating jobs, but ends cannot justify the
means. Priority sector lending will rise, bypassing the homeless.
Before giving credit
and tax incentives, we should clean up this sector, so that prices reflect
genuine, and not rigged, values.
For that to happen,
black market activity, a major cause of investment interest, should be nipped
in the bud – which can be done with minor changes to the Income Tax Act.
Prices will correct
when a house is seen just as a place to live in.
Housing needs a
distinct regulator to deal with its wide-ranging violations. And a
well-regulated sector should also incorporate affordable housing as an
obligation, comparable to ‘universal service obligation’ in telecom - without the
business seeking incentives for the same.
Developers need no
props right now. The ‘finance, real estate and insurance’ sector grew by 8.6%
in constant prices in 2012-13, way above the economic growth rate of 5%. Add to
this, the price rise in housing of 7 to 8% per annum (the difference between
growth at constant & current prices, it is also an underestimation of price
rise in view of black money deals), and it is clear that builders still have
pricing power, despite the slowdown.
Banks, too, are living
it up. Gross bank credit to retail housing was up 17% in the year ended May 31,
2013 while priority sector housing credit (below Rs. 25 lakh) was up 11.4%.
Credit to commercial
real estate (or to builders) was up 14% as well.
Where’s the problem?
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