On Sunday the Government released a statement saying, Public sector banks will shortly announce a package for borrowers for home loans in two categories — for loans of up to Rs 5 lakhs and Rs 5-20 lakhs  The housing sector has been in trouble in the last 6 months with very few takers for houses.

With this bailout package, the government is going to subsidize the banks providing housing finance.  I believe, instead of doing this, it should try to control the price set by the builders. 

Tell me in which Indian city will you get a flat for 5 to 10 lakhs?  It is not possible in Tier I and Tier II cities.  Or only those who have 15 to 20 lakhs cash in hand will benefit from this package.  If you take a look at the top cities in India, the real estate prices are ridiculous. In cities like Hyderabad, it is almost impossible to find a flat which is less than 30 lakhs.  If you want a flat in the city or near the city it will not cost you less than 50 lakhs.

No government employee will ever earn more than 50,000 rupees a month and 90 % of private sector employees earn less than 25,000 rupees a month.  These people would never be able to buy their dream houses if flats are available only at such astronomical prices.

Have you ever tried to calculate the cost of construction?  I know a couple of builders and I got these figures from them.  For a super deluxe flat, for a square foot, cost of construction (including the land price) will be between Rs 800 to Rs 1400.  This might vary a bit depending on the land cost.  So if an sft is costing Rs 1400, have you ever seen builders selling it for 1600 or 1800?  They will never sell it below Rs 2500. They almost make 100 % profit.

Also remember that the prices of steel and cement have come down but flat prices wouldn’t come down in the last 6 months.

If government really cares for middle class people, they should set a cap on the profits made by realtors.  Like cement and sugar, regulate the prices of houses.  Ask the builder to provide the cost of construction and allow him to make a maximum of 30% on construction cost.

Providing cheap loans to people for buying houses is a failed American policy. 

The government is encouraging realtors to keep their high margins and using the tax money to subsidize loans.  I urge the Government to increase the affordability of houses.  In all the metros there should be at least 30 to 40 % reduction in the prices of houses and apartments.

Right now the sentiment is low and reality sector is under correction.  Please allow the correction so that it can regain its health. A correction in these overhyped cities will eventually bring down the prices.  Don’t coerce it to gain artificial health by spending tons of people’s money.  If people don’t buy flats for another 6 months, and we can see the prices drop by 30 to 40%.

In the last few years, people panicked and purchased houses, as they thought the property prices might further increase.  But what people forgot or didn’t notice is that in any economy nothing can keep increasing for ever.  It took a big crisis (subprime) in a big economy (America) to prove it.  Not just the people but even banks missed this simple truth and got into trouble.

We the people of India should understand how the economy works and make wise decisions while a buying house. 

So whom is this policy going to benefit?  Definitely not the people in Metros and Tier I cities. It will benefit Tier II and Tier III cities.  Our infrastructure is not able to handle the current growth. Cities like Mumbai, Bangalore and Hyderabad have become costly. This will force builders, IT, manufacturing, and other investors to invest in tier II & III cities.  People in these cities will start investing in Houses. 

This is the only solution to offer a competitive price to the world for our product and services.

I hope one day we will have a world class infrastructure like US or Europe.

Image Credit: Kevindooley

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