A unique opportunity to kick-start growth

Feb 22 2013, 04:32 IST
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SummaryThere is a need to examine the housing sector closely. India should exploit the pent-up demand in housing for the weaker segments of the society.

The Indian economy had been growing steadily till 2008 and since then has been showing signs of a slowdown. The impact of the slowdown has been widespread, as uncertainty has set in the economy, credit growth is low and expenditure by the household sector has suffered. The issue is how to ensure that the economy again shifts to a higher orbit of growth. One route could be to raise demand within the domestic market. Fortunately, the housing sector, which has inter-linkages with nearly 269 other industries, can help to raise demand. The government can initiate measures to unleash the unmet housing demand of about 26 million housing units, mainly for the economically weaker sections (EWS) of society and low income groups (LIG). To tap the potential of the housing sector, the government could consider confidence-building measures and bring in transparency to direct resources in the desired direction.

Need for a regulator

In recent years, financing to the housing sector has been liberalised by the government and Reserve Bank of India. There are a number of players in the housing market and each player has a unique niche. These players are housing banks, housing finance companies, commercial banks and even non-bank finance companies. And then there are builders, developers and contractors, both in the private and public sector. In the absence of any regulator or supervisor, financial practices in the housing sector are non-transparent. There is a need to bring parity in the housing market across the country by having similar rules and regulations governing these players, and standardisation of the products, including lease agreements that are finally offered to the consumer.

There is also another important factor that necessitates the presence of a regulator. In different places, housing projects are mushrooming without any rational planning. A random cluster of houses in the middle of nowhere raises land prices all around it as well as expectations, without any economic rationale. Such random clusters could also negatively impact the financiers of these projects, mainly banks and housing companies, if these units are eventually not sold. A proxy for unsold houses could be unoccupied houses and these are found across the country, from Greater Noida to the outskirts of Mumbai, and government estimates place unoccupied houses at 62% of the newly constructed houses between 2007 and 2012. And, if these houses are for investment purposes--an explanation for non-occupancy--then it is not good economics in a country

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