Rate hikes an issue making real estate expensive!

An exclusive interview of the chairman of India’s largest real estate company DLF Ltd – K P Singh has justified worry of the increasing rate of potential damage that the Reserve Bank of India is doing to the real estate sector. Money getting difficult is making homes expensive even as the real estate sector remains as one of the least reformed. Mentioned below are a few answers by the man himself to Santosh Menon and Shaili Chopra.

Do you buy the theory of a price bubble in real estate?
No, I don’t. The market forces decide today. What is happening is because of demand. India is getting prosperous and the GDP is growing. Whenever the GDP grows, it will result in higher demand for real estate. Unless the supply increases, there will always be a tendency for prices to increase.

The Reserve Bank continues to raise rates. Is this the right prescription for real estate?
By increasing rates, the Reserve Bank is making real estate prohibitively expensive. This will not bring down prices. In fact lending should be liberalised to encourage people to buy homes. When the EMIs go up, availability will also go down and prices will continue to rise.

So do you feel that capital will remain constrained for the real estate sector?
Well, it looks like. In the garb of inflation-targeting, the RBI is making credit more expensive for us.

What do you think of the series of scams that came to light recently? Does this point to a governance deficit?
There should be some deterrence against corruption. If they (the government) are not worried about getting exposed today, somewhere they have to start doing their job with sincerity. In my view it (scams being unearthed) is going in the right direction. You might call this governance deficit, but for me this is an opportunity to clean up the system. It needs a change in the mindset and could take some time. In our country, it will take longer than elsewhere.

Do you think the government is not being held accountable?
No, the government is held accountable. I think things are being blown out of proportion. Now even well meaning and bold policy-makers will be tentative in taking decisions.

Today global corporations prefer China over India. Do you think that bodes badly for the industry?
India is a solid story and I do not believe that any foreign company will make a decision based on media reports about scams. They will stop coming to India only when they find that their investment will not give them profits. I think the opportunities here are definitely more attractive than those in most countries.

Source: http://economictimes.indiatimes.com