The realty sector was among the worst hit when the global financial crisis led to the market meltdown in 2008. Top developers were desperately lobbying the government for a bailout and pleading for unrealistic interest rate reductions to avoid lowering prices. Finally, residential prices dropped around 30%, but it was hardly enough, given the sharp increase in the previous four years. The Congress-led government, heading into general elections, organised a rescue. The Reserve Bank of India (RBI) tweaked NPA (non-performing assets) rules to allow realty loans to remain standard assets; nationalised banks and insurers found ways to lend more money. Loans to realty firms rose 52% between May 2008 and May 2009, although all leading developers were over-leveraged. Bailout, at taxpayers’ expense, is the new global mantra for pulling economies out of recession, so we won’t quibble about it. Our grouse is about RBI’s silence today when prices are being unscrupulously ramped up to unaffordable levels again while the RBI watches impassively. Many top builders have pushed residential prices back to the peak of the bubble level. In addition, a slew of realtors has lined up plans to raise over Rs11,000 crore through initial public offerings (IPOs) at exaggerated prices. This will give them the financial muscle to hold on to high prices, hoping that buyers will cough up ridiculous rates. That is not going to happen. Although industrial production numbers suggest a big recovery, business is still too wary about reckless hiring and inflated wages.
Will the government act decisively to remove realty from the clutches of land sharks? Can it not bring in someone like Deepak Parekh, chairman of Housing Development Financial Corporation Limited (HDFC), to ensure stringent regulation of the sector? Mr Parekh is among the few who have argued consistently for a realty regulator, for basic customer rights like standard measurements (based on carpet area) and builders’ guarantees for title, construction quality and delivery. Unfortunately, until politicians’ wealth keeps vaulting due to realty acquisitions (even that of High Court judges) or consumers get together to demand action, the only correction in prices will come through the collapse of another property bubble.