NEW DELHI: The spurt in real estate prices in the last 18 months is not just a "bubble'' but reflects the rise in input costs, imposition of service tax and some amount of inflation, according to Vice-Chairman of DLF Ltd., Rajive Singh.

Mr. Singh said the 20 to 30 per cent rise in property prices over this period actually represented an inflationary impact of 12 to 15 per cent, after factoring in cost increases.

Speaking to newspersons here on Thursday, Mr. Singh said the concern expressed by the Reserve Bank of India recently was justified as it was worried over the ability of borrowers to service home loans, given the steep increase in prices. At the same time, he felt that the average incomes of the middle-class had risen by about 20 to 30 per cent in recent years, improving their ability to afford more costly housing. The RBI, he said, was also worried over the prospects of lending for speculative activity, which was a completely different issue. In contrast, he said real estate prices were heating up even in China where similar concerns had been expressed by the authorities. But it took them about 15 years before they sought to put any controls on property pricing, he said, compared to the much quicker response of regulators in this country.

In this context, he said the Indian economy was fundamentally undergoing a shift and the heightened pricing of property reflected the gap between demand and supply. He said real estate projects were not coming through for various reasons including lack of environmental or other clearances. Demand was growing and supply was not sufficient now, leading to the steep rise in property prices over a short period, he said.

He said the company's expansion plans included the areas of hotels, special economic zones and urban infrastructure. The core competency of DLF, however, would remain in the areas of homes, offices and shopping malls construction, he said. Even the new areas of business were linked to the core business of real estate. He said "strong partners'' would be brought in by the company for each of its new areas. Mr. Singh said DLF had selected 25 cities out of the top 50 cities in the countries where it planned to locate expansion schemes.

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