Real Estate Must Get Real

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There is hope that exposure of dodgy players will lead to a better market.

There is hope that exposure of dodgy players will lead to a better market.

When specific cases of wrongdoing send shudders across an entire sector, it’s plain that suspicions of rot are as multitudinous as guilty consciences. Take India’s real estate sector. What began as a bribe-for-loan scandal involving a nexus of bankers, realtors and mediators, has turned into a rout for property prices—both of actual properties and shares of realtors. “Market prices are down an average 30 per cent in Mumbai and nearly 20 per cent in other metros,” says Neeraj Mahajan of Aayam, a real estate consultant. “Property stocks are in free fall,” adds Vikas Seth, director of My Money, a brokerage.

The Central Bureau of Investigation (CBI) is on the job, with a few officials of LIC Housing Finance, Bank of India, Central Bank of India and Punjab National Bank having been arrested and the role of advisory firm Money Matters under the scanner. But the fear is that more muck is waiting to be unearthed, both in real estate and banking; eligibility criteria and interest rates are a scam unto themselves, and bribes being paid for loans only confirms that hunch.
Mumbai’s commercial real estate prices are the hardest hit. The scam’s fallout is expected to clamp the flow of funds to this sector (both to buy and build), which could spell a demand as well as supply shock. For now, both transactions and sentiment are stunned, which has sent prices reeling. “The CBI move is a serious development for the realty sector,” says Mahajan, “The truth is that there is no regulation worth its name in this business. With major firms like DB Realty now in the dock, the need is for a proper clean up.” Allegations of ecological norms being flouted, as in the Lavasa case, deepen the worries. Alleged links with the 2G telecom scam don’t help either. “The arrests have roiled all the major players since there is absolutely no transparency in this sector,” says Seth, “Both banking and property stocks look weak, going forward.”

India’s real estate sector has been under the RBI’s lens since at least 2007, when it raised the risk-weightage for banks making loans to the sector as a safety measure. The Centre has also been watching foreign investment trends carefully. The sector’s carnivalesque scenario finally seems nearing its end, and there is hope that the exposure of dodgy players will lead to a better governed market. With billions of dollars lined up for investment in infrastructure, low-cost housing and warehousing, Indian real estate could do with a shake-out.