A chance to bring in reforms
As the country votes for a new government, a lot is about to change! India is voting to elect its 16th Lok Sabha, the lower house of the Parliament. The new Parliament thus elected will form a new government at the centre. While capital markets over the past couple of months have been witnessing a rally on account of the general perception that elections will bring stability at the centre, there are high hopes from the new government. A stable government, as envisaged by market observers, will give confidence to foreign and Indian investors to put in their monies in sectors that promise growth or need financial assistance. The real estate sector too will benefit from the change. It is expected that the new government will look into bringing some of the pending reforms such as the real estate regulation and the proposed real estate investment trusts boosting transparency and liquidity, respectively into the sector.
However, there is a common myth around the elections and its overall impact on the real estate sector — prices drastically fall during the polling months. However, this election has had a negligible impact on property prices.
Property prices depend on a number of other factors such as location, amenities, infrastructure and the economy. Prices have seen a slight correction in the last one year on account of problems arising out of economic uncertainty and the slump. The sector itself has gone through a tough time. Turbulences of last year still haunt the very fundamentals of the sector. High retail inflation, high interest rates and a continuous fall in the rupee value, has slowed the overall growth and hin- dered investment sentiment during 2013. Sales too had fallen. This has pressurised developers to sell at discounted rates.
But the price discounting is not helping homebuyers, as they are already troubled with inflationary pressures.
So, is there a correlation between real estate and the elections? The answer is yes. This election gives us an opportunity to elect a responsible government and help the government bring stability into the system. But how can this achieved? First let us look into the problems.
Rising property prices and irregularities stem from deeply rooted defects such as the absence of regulation and high number of property transactions related frauds. Moreover, the situation hasn’t changed past nine months. Though the Indian economy is gradually recovering and showing signs of stability, concerns such as high levels of inflation, slump in the industrial output and the impending risk of less-than-normal monsoon rains this summer has subdued the investment sentiment in the country. These events will firm up the key policy and lending rates. This would make the market tough for borrowers in short to medium term too. So problems will continue over the next few quarters.
Moreover, property transactions in our country involve high amounts of unaccounted money. The trend is especially prevalent in the resale market. Another common rumour is that property market is a key financier of election campaigns.
And the unaccounted money goes in to election campaigns of political parties. So if one is to believe the rumour, the current liquidity constraints must have increased.
While it is clear that prices fall due to certain other factors, it is also true that political uncertainty has significantly weakened buyer’s confidence in many key regions. Thus the newly elected government can first look at pending reforms and policies that would directly remove the irregularities of the market mentioned above and revive the investment confidence.
There is optimism in the market and the industry stakeholders.
The new government must ensure that investments must flow into sectors such as infrastructure to develop more roads, and develop rural and urban living spaces.
Homebuyers can then benefit from this development. Improved infrastructure will pave the way for more housing. A healthy supply of housing will help the industry to bring down the property prices to reasonable levels. Homebuyers who are at the lowest strata of the entire real estate ecosystem will benefit from these efforts.
Let us all vote for change!
• The author is MD of RICS, South Asia. He can be contacted by email at email@example.com