Rajan’s suggestion junked

The RBI governor’s statement last week exhorting builders to lower prices to offload inventory and boost demand created ripples in the already “choppy real estate waters”. While Rajan did score points with a common man for whom property is fast becoming out of reach, the developer lobby has been perturbed by this “unreasonable” suggestion.

“I do believe that if real estate developers who are sitting on unsold stocks bring down prices, that will be a very great help to the sector because once there is a sense that prices have stabilised, more people will be willing to buy,” Raghuram Rajan had said at the second SBI economics and banking conference in Mumbai last week.

However, rejecting the suggestion outrightly and putting the ball back in the government’s court Confederation of Real Estate Developers' Association of India (CREDAI) asked the government and RBI to rationalise taxes and cutting home loan rates.

"From the developers side a substantial reduction in prices has already happened across the country and any further decrease in sale prices would be a deterrent for the growth of a sector that contributes so much to the economy and employment at large," CREDAI said in a statement.

“A rate cut in the home loans is the need of the hour to relive the home buyer of the huge burden of mounting EMIs,” the statement added.

Ruling out any fall in prices due to the various taxes and guideline prices levied on property development Prestige Group CMD Irfan Razack said, “Almost 35 to 40 per cent of a property cost is loaded with taxes. Stamp duty, service tax, tax, VAT and excise duty. If the government is really serious about housing for all, it should classify houses on size rather than on the price or ticket size and exempt houses below 50 sq m from all taxes.”

He suggested that the government should levy less taxes on properties in the range of 50-100 sq m and apply market rates and taxes to houses beyond 100 sq m as they are afforded by well-off people.

Anil Kumar Sharma, CMD, Amrapali Group, said, “There is no room for a price cut as we don’t have the margins to reduce prices. This time developers are into high interest rates, input costs, taxes, land cost, funding issues and escalation.

At present, there is not so much hike in housing prices and still demand is noticeable so it is better to create an environment for the investors/ end users to attract them to have their homes at reasonable cost to clear the unsold stock in the property market.”

While maintaining that the developers have already taken measures to clear unsold inventories Sam Chopra, Founder & Chairman, RE/MAX India said, “ There is no doubt that a lower price makes a buyer happy, but I feel that a lot of developers have already cut down the prices and have a lot of their existing projects in a reasonable and affordable range. Just so that the demand picks up in the realty market, every developer whether small or big is working towards schemes and offers that will help them in clearing the past inventory”.

Asking banks to lower interest rates to boost the sales R. K Arora, Chairman, Supertech Limited, said, “Banks should easy the lending formalities for common man and much importantly ease the burden of the rate of interest for them. It should be win-win situation for both customers and banks” .

According to experts the guideline values of land are hiked by 35-40 per cent every year by state governments in all the cities, leaving no option for the developers and realtors but to pass on the cost to the customer.

“Once the guideline value gets revised upwards, you know the law, anybody who sells a property below the guideline value will have to pay the difference of stamp duty as far as the state government is concerned and also have to pay the income tax for the differential,” said Razack.

“If property prices have to drop, land prices have to drop, if you are increasing the guideline value of the land, which land owner will sell the property less than the land value, please tell me? If he does sell, he loses out both ways,” he added.

A recent Knight Frank report mentioned that over 7 lakh housing units are unsold in eight major cities as of June 2015. According to the report it will take more than three years to sell the inventories at the current pace, but the developers are ready to wait that much rather than reducing the prices. .

So, for all those waiting for the prices to be lowered there is little hope as the developers’ lobby is in no mood to blink first and maintains that it can sit on the inventory for more time. — GV