Some revival in housing

Some revival in housing
The Economic Times, April 10, 2009, Page 10

Will Not Sustain Unless Land Prices Fall

DLF’s residential project in west Delhi has reportedly generated a good response, suggesting that there is sufficient demand if the pricing is right. Elsewhere, too, sharply lower prices of new projects have managed to attract buyers interest. Indeed, in real terms, the prices are probably down to their levels in early 2006 and in the suburbs, where the price correction is more substantial, they have been rolled back even more. This sharp price correction is attracting those who had been priced out of the market in the real estate bubble. However, this interest is unlikely to sustain beyond the euphoria of those waiting on the sidelines over the last three years watching housing prices soar. Even at current prices, housing is out of reach for most Indians — according to a NCAER survey, the average household in India had an annual income of about Rs 65,000 in 2004-05. That interest rates have not fallen as much as expected is not helping either. The key issue, however, is land prices, which have to come down for house prices to fall to levels where there is a steady demand.

Land prices are high in cities and towns as suburban areas are not within commutable distance from the city centre. Because of the necessity to remain within commutable distance from the work place there is undue pressure on house prices in cities and towns. Partly, prices are also inflated because of the tardy development by the urban land authorities and a lack of incentives for redevelopment. For instance, there is always a rush for houses sold by the Delhi Development Authority because of their affordable pricing and strong emphasis on weaker sections. Yet, despite sitting on ample land, the authority has not been able to meet the growing demand. There is a case for increasing availability within the cities and towns through faster development and redevelopment entailing better used of land. More importantly, urban transport and road infrastructure needs greater attention, allowing people to live in suburban areas where land is a lot cheaper. Clearly, reviving housing is substantially within the government’s domain.