http://www.worldpropertychannel.com/asia-pacific-residential-news/india-sees-record-rise-in-house-prices-as-affordable-units-get-little-relief-5449.php
India Sees Record Rise in House Prices as Affordable Units Get Little Relief
ousing prices in India are the highest in the world, according to the most recent research from London-based Lloyds TSB International Global Housing Market Review. Prices in a country of 1.21 billion residents have increased 284 percent since 2001, after inflation. That number equates to an annual increase of 14 percent.
The Lloyds report ranks Russia and South Africa with the second and third highest housing prices. Prices in Russia are up 209 percent over the last 10 years; in South Africa, they are up 161 percent.
By contrast, shelter prices in Japan dropped 30 percent in the reviewed period. They were down 17 percent in Germany. The U.S. showed a price decline of 2 percent over the past 10 years, according to the report.
Great Britain is still among the top 15 performing markets. Housing prices rose only 50 percent over the past decade.
Last year alone, prices in India rose by nine percent, according to the Lloyds report.
According to banking and financial analysts in India, the recurring problem in trying to create affordable housing is a lack of inexpensive banking credit for developers, increased debt servicing levels and a declining rate of foreign direct investment.
Published reports note India"s real estate sector has contributed only 5% of India"s overall GDP this year as compared to a contribution of 10.6% in FY 2010-11
Developers were largely disappointed with the country"s budget for 2012. They had hoped the budget would have included more incentives for the development of affordable housing. Still, several of the key budget items were aimed at stimulating capital for new residential projects.
For example, External Commercial Borrowing ("ECB") doors are proposed to be made open for specified low cost affordable housing projects which could potentially provide the much needed liquidity to the housing sector.
Further, the interest to be paid by developers on ECB loans available from July 2012 to June 2015 will drop to 5 percent from the existing rate of 20%
The budget also includes a plus for Venture Capital Funds ("VCF") focused on the real estate sector. The VCF making investments in real estate will not be subject to tax and the tax will be levied at the investor level.
This amendment avoids the perennial controversy surrounding taxation of trusts. It is also expected to reduce litigation on many real estate-oriented matters.
Analysts in India also note that one of the major budget proposals which may have a huge cash-flow impact to the real estate sector relates to the deduction of a 1 percent tax on the purchase of certain land parcels in urban areas. The measure would also help to close deals where installment payments are agreed to by buyer and seller.
While many in India"s real estate industry were hoping for a strong regulatory and effective policy framework which would have helped boost the real estate sector, the Union Budget 2012 falls short of expectations, according to several financial analysts.
However, with the expected increase in liquidity through the availability of ECBs and the availability of higher deductions for the development of affordable housing generally, the real estate sector may see a surge in activity this year from an otherwise stagnant growth pattern, according to several analysts.
Arun Gupta
