The Hindu : Andhra Pradesh / Hyderabad News : `Correction in real estate field imminent'

Online edition of India's National Newspaper
Sunday, Jan 14, 2007
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Andhra Pradesh

Andhra Pradesh - Hyderabad

`Correction in real estate field imminent'

Special Correspondent

Boom attributed to rise in interest rates on housing loans, land prices

SHARING VIEWS: K. G. Krishnamurthy (HDFC) and Neel Raheja (K. Raheja Corporation) at the panel discussion on real estate at ISB in Hyderabad on Saturday. Photo: Mohd. Yousuf

HYDERABAD: Top leaders of real estate business in India have expressed the view that a correction in the existing boom is imminent in the near future across the country due to rise in interest rates on housing loans and jacking up of land prices by farmers.

They made the point at a panel discussion on the theme `Real estate in India - the research imperative' at the Indian School of Business (ISB) here on Saturday. In fact, Nayan Shah, Chief Executive Officer of Mayfair Housing, Mumbai, warned that the correction could take place in six to 12 months.

He did not expect it to take place where the locations selected for development were good. Integrated townships and developers with proven record were safe bets, he said, and added that the element of risk was high where development was indiscriminate. Housing projects taken up by such developers faced a serious problem.

Reasons

Citing reasons for the likelihood of correction in the market, Mr. Shah said the interest rate on housing loans had increased by two percentage points in the last one year and there was the threat of further hike in coming months.

But, the income levels of buyers had not gone up correspondingly. On the other hand, farmers expected more than a fair value for the lands that they wanted to dispose of. Agreeing with the view, Ramani Sastri, CMD of Sterling Developers, forecast correction once the real estate market matured. It was in the nascent stage yet.

Kishore Gotety, Director (Investments), ICICI Venture Funds Management, said the market was new for all the players. They were still experimenting with it. Balaji Rao, MD, Starwood Capital India, said there was a huge appetite for investment in real estate although it was a long-time play.

The participants also discussed lack of funding for the business from traditional sources like banks and the obsolete methods adopted by town planners. V. Narasimhan, Partner, Venkataram Associates, regretted that modern planning tools like the Geographical Information System were not introduced.

Rationalising norms

Neel Raheja, Group President of infrastructure major, K. Raheja Corporation, and Arvind Pahwa, Managing Director, JP Morgan Asset Management, stressed the need to rationalise Government norms on land transactions and constructions.

The former said title deeds of a disputed property in Mumbai changed five times in as many years and that too when court litigation was going on. In the same metropolis, Mr. Pahwa said 25 No Objection Certificates were required to construct a house.

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