INDIAN HOUSING BUBBLE “ITS IMPLICATIONS AND PATH AHEAD”

Mon, Feb 29, 2016

Education

Assets and its values have undergone changes, right through human history. Some assets have appreciated, some have depreciated and some have ceased to remain an asset. But land is one asset that has always been the dreams and aspirations of a large section of the population.

In India, after the explosion of the population bomb, the demand for land has increased manifolds. The price of land has risen to alarming proportions. But it is an open secret that it is one industry where black economy has a lot of presence.   The politico-mafia nexus has also been largely responsible for this dire situation.

Market forces are always good for an economy, but the mafia forces always have a detrimental effect on its overall health. As we all know, much of the real estate industry is operating on speculations. There is more noise than substance in it. Let us understand it with an example. Suppose the property rate in a particular area is 1000 rupees per square feet. Now, within three months, a coterie of powerful people sells their properties at 1500 rupees per square feet to potential buyers by various means, be it by changing the land use or by promoting a big project near it in the coming future or by any other means, the prices in the area are now automatically set at 1500 square feet. This system is only benefitting the high and mighty and is making the plight of low middle class or people even worse. There are no effective regulations to put an end to this dubious system. Recent upheavals in Nandigram and Bhatta Parsaul are examples that arise, as a result of such mismanagement.

Indian property bubble is building up. More and more are flocking to the nearby towns and cities in search of jobs, thereby worsening the problem further. In a country like India with 1.25 billion people, developing industrial hubs near only major metropolis would not solve the problems. Developing industrial hubs, at least, at the divisional level, would be the ideal solution. As a result, a large section of the country would experience the fruits of the industrialisation that is going on in the country.

Now, Let us move towards Seemandhra. After ten years it has to part with Hyderabad and has to develop a new capital. What would the politicians, bureaucrats and other builders do? They would buy huge tracts of land in some remote city at very low prices. They would then convert the land use by various means and then announce this city as the capital of new state of Seemandhra. With the coming of various government and private projects, land prices would escalate like anything, thereby benefiting them hugely . It is the common man that always suffers. We do not need a country where there are two INDIA’s. One is the “The shining one“and the other is the ‘Real Bharat’. Each and every individual should be a part of the growth story.

The problem is also the worsening the disparity in the incomes of the various regions of the country. Let me quote the example of my state i.e. Uttar Pradesh. If you look at the real estate prices in NCR region i.e. Noida , Greater Noida etc. , it has gone out of the reach of common man . Even the upper middle class cannot afford it without the ‘vicious’ support of the banks. The cities are becoming inaccessible, as far as , housing and rentals are concerned . This is a problem of deep concern. It has also led to dissatisfaction in other regions of the state. People nearby NCR region are benefitting by the huge rise in the land prices, but the other parts are still reeling under acute poverty. I want to ask a question.  Do only the people of NCR have a right to higher standard of living?  What fault has people from other regions have committed? Either the land prices should be regulated or the development curve should shift to the other regions as well. Otherwise the demands for new states and developmental authorities would not subside. The Eastern UP, even with cheap labour and one of the most fertile lands in the world, is reeling under serious poverty. The land prices in the region are either growing very slowly or have stagnated.

The situation is also worsening the overall productivity of the population. We always emphasize that India should be a manufacturing nation. We should contribute things of real substance to the world, but the fact is that the path chosen towards that goal is very ambiguous. People in large metropolis and cities have taken property dealing as a safe option. They fail to understand that this honeymoon period will not go on endlessly.   The fizzling of the US and Dubai real estate bubbles are good examples of that. Money is a thing that needs to be circulated in the economy. People in the country just follow the safest option. They invest their money in real estate thus capturing a huge amount in it. If that money was circulated in the economy many people would have benefitted from that.

Housing is a basic necessity. Every family needs a home to sustain its life. But the craze for real estate is making them blind. They go on and on investing without thinking of the plight of others who cannot afford it. Such a situation cannot continue for long.

It is high time that we look into and refresh, whenever needed, our land reforms system. A central authority should be set up which should look into the real estate prices at pan India level. The disparity between the prices of various regions should be not huge. A proper structure needs to be put into shape to look at the various pitfalls of the real estate industry. The Land Acquisition Act and REITS i.e. Real Estate Investment Trusts are good measures taken by the government in this regard. But a lot still needs to be done. Low cost housing, as a concept, should be promoted in a big way.

Housing is a necessity.  Let it remain a necessity. It should not get converted into a dream.

By: Abdul Baree

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