RBI governor's idea on price cuts is impractical

RBI governor's idea on price cuts is impractical

BENGALURU: Realtors in Bengaluru say dropping property prices to lower inventory levels is impractical. They were responding to Reserve Bank governor Raghuram Rajan's statement on Thursday that banks may be able to reduce home loan interest rates only after property developers reduce prices to clear the current high levels of unsold stock. 

Prestige Group chairman Irfan Razack said prices could come down only if the government reduced taxes related to property and ensured speedy approval of projects. 

Unsold housing stocks are at a two-year-high and developers continue to hold on to prices despite a sharp fall in transactions. The RBI is worried that if interest rates are lowered without reduction in property prices, there would be no tangible effect on property demand and would only reduce bank earnings. 

"The RBI governor is a much respected person but I wish he had done some introspection on how property prices can come down," Razack told TOI on the sidelines of the National Association of Realtors annual convention

Razack said an annual spike in land costs, a steep tax rate of 35-40 per cent, and increasing delays in project approvals have left builders with no choice but to pass on the burden to the customer. His views were echoed by M R Jaishankar, CMD of Brigade Group. 

Shashank Jain, executive director, transactions group, PricewaterhouseCoopers, said developers were unlikely to drop base prices but may try to attract customers by providing amenities and absorbing stamp duty cost partially. He said if base prices were reduced, buyers may hold back purchases expecting more cuts in future. That would become counterproductive for the industry and economy. 

Razack said if the government was serious about housing for all, it should classify houses according to size rather than price. "If it is a lower income group house, say a unit less than 50 sq metre, make it completely tax free. Then the house price will drop drastically from Rs 15 lakh to below Rs 10 lakh," he said. 

Jaishankar said even in cities like New York, there are lower rates for lower-income housing. "In India, interest rates may vary by 1-1.5 per cent, which is not good enough. The government should lower stamp duty, VAT and service tax for lower-income housing," he said.

Source :TOI