Indian Real Estate – Govt. Created Bubble ?

 

Indian Real Estate is an example of a bubble created by govt. policies. Indian Real Estate is provided a number of benefits which has indirectly reduced supply while demand has continuously increased resulting in spiraling Sale prices and consequently expensive projects for end buyers or users. This in turn increased cost of projects of many industries such as retail and families in turn hurting their EMI’s.

Let’s look at the benefits :

1. Tax Rebates on investment in real estate :  Why to give any benefit to any developer ?

2. Loan restructuring ? Why is loan restructuring allowed by banks to these developers. They artificially keep sales low and prices high resulting in headache for banks and high cost of projects for end user. Let the supply keep on coming in and let developers keep continuous projects rather than keeping old projects at high prices and making a bubble.

3. Lack of transparency : There is no Regulator for this sector and there is complete lack of transparency of source of money involved in any project and also on accountability for poor construction also. If a building falls or bridge falls, there is no system similar to class action suits outside India.

4. No tab on black money involved : We all know Real estate is the easiest source of black money in India. How can when our own pan wale knows how can he circulate his cash into real estate, the govt. can continue to sleep over its 50 year old system to monitor real estates. The mere fact of increasing stamp duty and imposing service tax will just go on increasing cost of project but will not basically address the basic regulation, demand supply gap and accountability in the sector.

5. All listed companies in Stock Market: No layman in Stock market can actually decipher the value of a real estate stock simply because of lack of transparency in this sector. This results unfair valuation of the listed company which is bad for the company and for the investor also. Govt. Should bring in some steps to ensure that cost of real estate remains profitable for developers and affordable for many decades for the end user also so that industry can plan their capex on the basis of this.