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WILL THE R EFFECT ON THE SECTOR WORK

Off late, the real estate sector of India has been much in limelight due to the floating
negative sentiments caused by delay in possession of projects, coupled with sky rocketing
prices especially in Tier 1 regions of the country. These reasons have dented the housing
demand and is causing drastic fall in the interest of potential customers along with heavy
inventory pile up for the developers. Being a case of land, big depreciation is pretty much off
the cards and hence, can prices come down becomes the question. But in order to keep the
market and sentiments stable, developers need to provide some extra cushion. In a recent
speech delivered by Raghuram Rajan, the Governor of RBI; he insisted upon developers to
take the onus and bring down the prices to help revive the sector and provide much needed
transparency. I am hopeful that as interest rates come down, there will be more credit and
buying. And I am also hopeful that prices adjust in a way that encourage people to buy,
Rajan said.
Standing in sync with the words of the Governor, Avneesh Sood, Director of Eros Group also
believes that price flexibility has become the need of the hour, as he explains It is crucial to
understand that real estate sector is an end user to almost 35 other industries and sectors, and
if this sector is drowning, then it is not fruitful for the economy in general. RBI has played its
part seemingly well over the last one year by bringing down the repo rate to 6.5 percent.
Almost half of the rate cut benefit has been passed on by the banks. It is time now that
developers also chip in to help this market get back on track.
Rajan further said, My sense is that there is a little bit of everything that needs to happen
for the revival in the real estate sector. There is an issue of certainly how they see the
housing market and how they see prices. There has to be an adjustment so that more people
want to go and buy, he added. Highlighting on the escalating pricing effect that has resulted
towards lowering demand and high inventory levels, Ankit Aggarwal, CMD, Devika Group
avers Real estate is an asset which is somewhere bound to appreciate with time. But the kind
of appreciation that most Tier 1 regions across the country has witnessed, it has taken the
buyers away from the market, especially investors, who were a prominent sight when the
property prices were low. Housing demand is driven most by end users who again are looking
at property prices. Thus, after RBIs rate cut push and banks following the trend, if still the
revival does not happen, then developers have to work towards decreasing the prices and
increasing the transparency.
High sale price is a result of high cost price that begins with the cost of land and the rates at
which developers borrow funds. At present, developers across the country borrow at rates as
high as 22-24 percent and with land being limited and infrastructural upgradation happening
at a rapid pace, fresh land parcels have become much expensive, thus adding to the cost. Here
comes the importance of being an industry. Granting of industry status to the realty sector
will directly help in the reduction of prices. The moment a developer is able to borrow at

lower rates, something that industry status will allow, it will directly contribute towards
lowered prices. But at the same time, it is crucial for the borrower to maintain transparency
and have a sound history. Industry status to the realty sector is on the wishlist for long now
and we expect a new face of this sector when it is attained, elucidates Deepak Kapoor,
President CREDAI-Western U.P. & Director, Gulshan Homz. Rajan also emphasised on the
fact that when it comes to financing to the developers, he pitched for more transparency on
the borrowers side. He said We need action on the real side (as) also on transparency on
land acquisition, on transparency on construction and on sales. He further added that more
transparency in such matters would enable financiers to better track flow of funds, which
project was being funded by who and who all were the other financiers.
RBI has lowered the repo rate by 150 basis points since last year January and now stands at
6.5 percent, which is the lowest in the last five years. Banks have also provided the benefit of
this rate cut to a large extent to the customers. But still, the market is not picking up pace on
the grounds of high prices and lack of transparency. It is high time that the developers take
the market sentiments into consideration and allow flexible pricing for the customers along
with increased transparency, so that this sector gains back the lost momentum, states
Kushagr Ansal, Director, Ansal Housing.
Projecting Indias growth few years down the line and acknowledging real estate sectors
future contribution towards economic development, Rajan commented that Construction of
every kind, including houses and roads, is a big source of growth especially for a developing
economy like ours. It is true that India is on a development spree on various construction
fronts. Construction sectors housing aspect cannot be left as it is and rather, needs to be
taken up seriously in order to keep this sector contributing towards Indian GDP.
Construction sector is one of the largest contributors towards the Indian GDP with almost 6
percent contribution each year. This momentum has to be maintained. The demand is taking a
toil due to the absence of proper transparency and high prices. Real estate bill is moments
away from becoming an act which will promote fair play and transparency, but what about
the pricing factor? State governments need to provide fresh land banks at reduced prices and
the centre must grant industry status. The sector will then gradually see momentum shifting
towards better demand and growth, concludes Ashok Gupta, CMD, Ajnara India Ltd.