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RBI sees room for housing prices to come down

Thursday, 21 August 2014 - 7:15am IST | Place: Mumbai | Agency: dna

Deputy governor SS Mundra says contrary to perception, the central bank's suggests that loan growth in housing and real estate segments has been quite robust

The Reserve Bank of India (RBI) deputy governor S S Mundra said bank lending to the real estate sector has been robust.

Speaking at a conclave organised by the National Real Estate Development Council, Mundra said, "The common refrain is that commercial banks have stopped lending to the housing and real estate segments in the last four-five years. However, our review of the extent of loans to these as a whole gives a contrary picture, indicating that loan growth in these segments has been quite robust."

He said the huge pile-up inventory in the real estate sector gives enough room for housing prices to come down from the current highs.

High prices tend to create asset bubbles, which may hurt the banking sector. Pointing out that the cost of houses is still very high, Mundra said improving affordability of houses is important in a country where more than 60% of the population lives on less than Rs 120 a day.

Referring to the argument that taxes account for 22% of the housing cost, the deputy governor said, "More progressive construction technologies and several other measures can make it possible to make houses less costly than what they are today."

Mundra's comments come in the backdrop of the huge housing shortage in urban India, which was estimated at 18.78 million units in 2012 and is expected to touch 30 million by 2022.

Of the total housing shortage of 18.78 million in urban India, the shortage in the economically weaker sections and lower income group categories was 10.55 million and 7.41 million, respectively, according to the report of the government's technical group on urban housing shortage.

Regarding the demand from individuals for second and third houses, Mundra said at this stage of the country's economic development, bank credit is needed more for creation of productive assets.

"We would not like to create a situation whereby there is artificial demand in the housing sector," he said.

Mundra said given the relatively better asset quality in the housing and real estate sectors, banks have a natural incentive to keep on lending to these segments. Further, the asset quality in these segments is also relatively better.

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