Will this solution to India's housing problems work? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Will this solution to India's housing problems work? 

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In this issue:
» India reports weak IIP data for April
» Central banks need more autonomy
» China's trade surplus is dwindling
» Govt. has ambitious plans to build roads
» ...and more!

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00:00
 
Owning a house is a wish that most Indians would fervently want to fulfill. But for many, all it remains is just a dream. The real estate sector has simply not done enough to ensure housing for all. And this is despite the fact that demand for housing is ever palpable; in fact many Indians are still looking to own their first home. The reasons for this poor state of affairs are plenty. Unreasonably high prices, focus on luxury projects, poor disclosures, archaic land laws, nexus with politicians, flouting rules and corruption are some of the main problems of the real estate sector in India.

Little wonder then that Mr. Deepak Parekh, chairman of HDFC, India's largest housing finance company, has stated that it is absolutely essential to have a real estate regulator. Such a regulator would have to ensure that builders follow rules and focus on quality, failing which they would be penalised. It is the absence of such a regulator that is the root cause of corruption, anxiety and malpractice, the chairman of HDFC believes.

Mr. Parekh could not have been more right and a bill addressing some of these concerns seems to be under deliberation in parliament. However, will such a bill see the light of day? Further, who will be the real estate regulator if the decision to appoint one does get made? These are the questions that one needs to ponder. Since policymakers themselves have vested interests in real estate in India, one should not be surprised if no decision is made on this in the medium term. This is why appointing a real estate regulator will also not be as easy. The only thing that will make homes affordable to millions of Indians is the government's will to reform this sector, but that seems highly unlikely for the time being at least.

Do you think that appointing a real estate regulator will solve the problems of housing in India? Share with us or post your comments on our Facebook page.

01:26  Chart of the day
 
India's industrial production numbers were quite weak for the month of April, 2011. However, today's chart of the day shows that these numbers were better than its peers barring China. The weak IIP numbers were largely due to a slowdown in manufacturing, which contributes about 80% to overall industrial output. Further, this IIP data was the first of a new series with a base year of 2004-05, new components and weightings. That said, these numbers were signs that India's economy is facing the heat on the back of rising input costs, fuel prices and interest rates. It will thus be interesting to see what the RBI chooses to do in its next monetary policy.

Data Source: The Economist

02:11
 
The government is depending on strong economic growth to propel the economy forward and keep its fiscal deficit in check. But, with inflation as its nemesis, the RBI raised interest rates several times over the past year. This is definitely going to impact short term growth. With these contradictory views, we wonder which one of them is going to give in first.

Well, the RBI is not constitutionally independent. The government has the power to direct its moves and even appoint the central bank governor and other deputies as well. After the 2008 crisis, central banks now have the increased responsibility of financial stability besides controlling money supply and supervising banks. Thus, here is a huge need to ensure their autonomy. This will free these them from dealing with volatile short term developments. Central banks will thus be able to focus more on long to medium term goals. Benefits may not be seen upfront. But, in the long run having a completely independent regulator will be very beneficial for an emerging country like India.

02:52
 
China, the world's second largest and fastest growing economy registered a trade surplus of US$ 13 bn for the month of May, 2011. Though the figure is higher than the US$ 11.4 bn surplus recorded in the previous month, it is much lower than the forecasted US$ 18-20 bn. We believe that herein lies the clue to understanding China's changing economic landscape. The Asian dragon is transitioning from an export-oriented economy to a domestic consumption-oriented one. One may argue that it is unfair to judge an economy from the monthly data which tends to be volatile. However, several indicators are all pointing in the same direction. China's trade surplus had hit a record high of US$ 300 bn in 2008. However, post the global financial crisis, the same has been consistently declining.

In the long term, factors like currency appreciation and increasing wage costs will contain the growth rate of exports. On the other hand, domestic consumption is set to scale up. Of course, the structural transition will not be without pain. And what happens in China will have significant ramifications for the rest of the globe.

03:33
 
Road projects in India have been on a slow track so far. However, with recently announced contracts to build 11,050 km of roads in the current fiscal year, a silver line seems to be emerging. The target plan set by the concerned ministry involves an investment of around Rs 700 bn. The plans are being reviewed by the Prime Minister himself.

While it all sounds good, any success will depend on speedy execution and funds availability. If history is anything to go by, such projects in India have always been fraught with regulatory and financial constraints. With the road blue print, it is time to go for some regulatory reforms as well. Without the latter, infrastructure deficit will continue to be a huge roadblock in the nation's growth.

04:10
 
It was a lackluster week for the world markets with majority of the global indices closing in the red. Japan was the only gainer registering a gain of 0.2% on bargain hunting amidst possible undervaluation of shares. China closed on an edgy note and the US registered its sixth straight loss for the week (down 1.6%) as concerns over economic slowdown intensified. Poor jobs data released last week also impacted the market sentiments to a certain extent. Increasing employment rate has led investors to believe that that the economic recovery in US is stalling. In Europe, France was the biggest loser (down 2.2%), followed by UK (down 1.5%). Germany ended the week down by 0.6%.

Indian stock markets closed the week in the red (down 0.6%). This was on the back of discouraging macro-economic data released on Friday. The growth in IIP (Index of Industrial Production) numbers declined to 6.3% in April (from 13.1% in the same month previous fiscal) mainly due to poor performance by manufacturing and mining sectors. Declining factory output will increase the pressure on RBI to re-visit the tight monetary policy it has been following to curb inflation. Amongst, other markets Singapore closed the week down by 2.1%. Even Brazil ended the week with a loss of 2.6%.

Data Source: Yahoo Finance, Kitco

04:56  Weekend investing mantra
"Businesses always have opportunities to improve service, product lines, manufacturing techniques, and the like, and obviously these opportunities should be seized. But a business that constantly encounters major change also encounters many chances for major error." - Warren Buffett

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16 Responses to "Will this solution to India's housing problems work?"

k sridhar

Jun 15, 2011

It is very much right to say that Indian real estate sector needs a regulator. Government can form a regulatory body like SEBI for markets. What many indians need is an affordable house, not luxury projects. so, these real estate guys should focus more on this.

Like 

R.K.GUPTA

Jun 13, 2011

The fear of few readers that the propblems will notbe solved by appointing the real estate regualtor. I would like mention that it is only prception. If the regulator is appointed by a commmittee of four/five persons i.e. Chairman of HUDCO/Prime Minister / Leader of Opposition/chairman of CVC with consensus and not the majority decision. Probably then the person appointed a regualtor will not only be competent but judicious also to ensure the fail play to all.

Like 

Seth

Jun 13, 2011

Having a REAL ESTATE regulator is like appointing yet another set of inspectors. Besides land and buildings in a State subject. Each State Government will try and come up with their own versions or completely ignore endorsing the concept of a regulator. This talk of having a regulator has been going on ever since the private developers came into existance. I feel this talk / discussions comes up regularly at intervals when the glaring faults in the Real Estate industry are visible to every one. Discussions and white papers convey a sense of impotent concern. The Real Estate developers will continue dodging and fudging including talking about SELF REGULATION thru their own body CREDAI. How rediculous can the situation become set a thief to free the theif. The requirements of the laws to regulate the industry are very simple and can be drafted by any lawyer or judge within 2 weeks, IF THEY WANT TO DO SO.There is no recket science in formulating the basic l;aws and allow the existing system of law enforcement to deliver the intended results.

Like 

Amalaraj Marian

Jun 12, 2011

The real estate has really been a fleeced industry, a) because of the huge amount of the parallel money involved in the transactions. b) because this money has come from the beholders of law itself, be it beurucrats or people from the political backgrounds. every tom, dick and harry from the political arena are holding a huge part of this pie. As long as the nexcus is there no matter what even the regulator will not be able to do any justice to the aam admi what needs to be done is an absolute cleansing of the system. or the market forces will ensure that the cleansing takes plase on its own. the moment any asset is beyond the reach of a common man the desire is pospond to a later time history shows this the amm admi should be able to have patience even if the prices stagnate for a few years the required results will be acheived.

Like 

R.K.GUPTA

Jun 12, 2011

The appointment of real estate regulator will solve the problem of irregularities of the builders up to some extent. But the question is not about the irregualrity only but the prices also as well alongwith quality. If the regulator concentrate on the quality, price margin and terms and condtions which should be resonable to all, then I am confident that appopintment of regulator will help to get the home for those who have capacity to pay. Though your question ends here but I wish to add somthing more if you permit:
The prices are so high that the flates/plots are beyond the reach of the general people. Whenever the circle rate of the property is increased, it is objected by the vested interested people. Here I would suggest that the circle rate should be in accordacne witht he market rate which is known to every one. However, the rate of stamp duty be reduced in percentage terms for the buyer. The most of the black money of the investors is lying in real estate. Other alternative is that whenever any owner wants to sell the property it should be sold to the government at any point of time and get the payment. the buyer may approach the Govt on net and find out and apply for the same. The black money shall be finished up to 60%. Remaining 40% is in foreign countries for which number of steps are proposed by many people. Here the committment of the government in right perspective is a must to get results.

Like 

R.K.GUPTA

Jun 12, 2011

Central banks need more autonomy
By setting up advisory counsel by Govt Of India is a direct intervention in the independen functioning of RBI. In fact the politicians never wants anybody to work independeltly. They do not allow CBI to work independenlty and place the people of their choice who can dance to their tune. In Election Commission also they placed retired Chief of his own views. They interfeared in appointing Chief Justice of India superceeding Justice Khanna who ultimately resigned. This situtation is very serious for a democratic country. Here I would like to impress upon the Central Govt that intention is equal to results. If the intention is good the result shall definitely be good and if intention is bad the result shall be definitely bad. Yes! time is uncertain in both the situations. Let the wisdom prevail upon the politicians of all the Govts of this country.

Like 

Ramji

Jun 11, 2011

We need to bring Housing sector problems under the resolution by Consumer Forum/court for speedy redressal. Buying a house/apt is a nightmare given the goonda image of the builders and there is absolutely no fairplay. Regulatory body should have enough muscle to get a new builder to replace a nasty builder midway in a project when buyers are held to ransom often.

Like 

Sthithapragnja

Jun 11, 2011

EQ.MASTER TEAM ,

The less said about the Rules,Laws,Regulations etc the Better ?? We have heard about fishing in troubled waters isn't it ?? We can see what is Method Versus Muddle in any scenario. The more the merrier !! The more laws especially in the Real Estate scene the better for whom ?? for the people or for the Rulers ??

Law is made for human beings and not the other way ??

The interpretation of laws/rules is done according to the whims and fancies of the rulers and not for the common benefit of the society at large/community in general !!

Merely havig the laws ( single window clearance/oversight) or appointing a Regulator for the Realty sector to oversee the compliance of laws made will not solve the problems encountered by the common man as eminently pointed out in your article !!

Like 

Gopal Kalpathi

Jun 11, 2011

Time again the real estate sector have had their own scams. During the license raj it was the cement quota, then came the land grabbing scam, then the nexus between the builders, politicians and the mafia,then the TDRs and now the Adarsh scam (note that this involved the armed forces, which is considered the most revered and supposed to be detached from all politics and civil society). What it indicates is that no matter whatever or whoever be the regulation or regulator their integrity and sincerity will be tested to the hilt. However, my belief is that having such a regulator will be a move in the right direction. Now that we have have the RTI and probably the Lok Pal bill also, let the journey towards a cleaner real estate sector begin.

Like 

subrata

Jun 11, 2011

Mr. Parekh's observation is more than true. But India is following a dual standard in Real estate & industry. There are lot of concern expressed everywhere about acquisition of cultivated land for Industry. Lot of agitations by people and political parties. I used to travel a lot on highways as a part of my job for last 4-5 years. It is my observation that the farmland is slowly and gradually getting converted into residential buildings. Who permits that? It is observed almost everywhere around highways but no concern is expressed by anyone. Builders taking away the land from hapless farmer at throwaway price and selling to customers in astronomical prices. No political parties come forward as there no political gain by supporting farmers. We really need some control to check these builders.

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