Unreal realty

Home buyers are finding that their dream homes are becoming more and more unaffordable. A recent study by one property consultancy suggests that Mumbai, Thane and Navi Mumbai have seen the steepest increases in property prices in all segments — affordable, mid-price and premium — during the second half of calendar 2009. The price increases have been in the range of 10-30%, with the affordable segment seeing the highest increases. This makes a mockery of the idea of what we think is "affordable."

In contrast to Mumbai and its satellite cities, property price increases have been moderate to stable in the National Capital Region, Bangalore, Chennai and Hyderabad, suggesting that where there is land available, and where the real estate markets work a bit better, home buyers have a decent chance of finding themselves a roof.

However, the crux of the problem lies somewhere else. What is not being clearly acknowledged at the official level is the nexus between builders, politicians and the land mafia, who have all developed a vested interest in keeping real estate prices high. It is no secret that many politicians hold land in benami names, and would, therefore, have no interest in making the market work. It is rumoured that one of the main reasons for the sharp opposition from Andhra politicians to the creation of Telangana is that many of them have purchased land in an around Hyderabad. If Hyderabad goes to Telangana, out goes their ability to mint money from these
illegal holdings.

To make matters worse, we are now close to the point where interest rates will start rising, thanks to high inflation. The Reserve Bank raised rates last week, and home loan rates will follow soon enough. This means not only will most homes become unaffordable to the middle class, the cost of financing too will go through the roof. Since this will push more people to rent houses, the rental markets, too, will start firming up sooner or later, if they have not done so already.

There is only one way to square the circle: urban land reforms, and an all-out drive to ensure transparency in land deals. Of course, this is like asking politicians to legislate something that is not in their own interest, but the best way forward would be for one state to start the process. Once this happens, the pressure will build on other states to follow suit. There is no other way to solve this problem.