Need for a regulator
In recent years, financing to the housing sector has been liberalised by the government and Reserve Bank of India. There are a number of players in the housing market and each player has a unique niche. These players are housing banks, housing finance companies, commercial banks and even non-bank finance companies. And then there are builders, developers and contractors, both in the private and public sector. In the absence of any regulator or supervisor, financial practices in the housing sector are non-transparent. There is a need to bring parity in the housing market across the country by having similar rules and regulations governing these players, and standardisation of the products, including lease agreements that are finally offered to the consumer.
There is also another important factor that necessitates the presence of a regulator. In different places, housing projects are mushrooming without any rational planning. A random cluster of houses in the middle of nowhere raises land prices all around it as well as expectations, without any economic rationale. Such random clusters could also negatively impact the financiers of these projects, mainly banks and housing companies, if these units are eventually not sold. A proxy for unsold houses could be unoccupied houses and these are found across the country, from Greater Noida to the outskirts of Mumbai, and government estimates place unoccupied houses at 62% of the newly constructed houses between 2007 and 2012. And, if these houses are for investment purposes--an explanation for non-occupancy--then it is not good economics in a country that is short of housing.
There is also a need for an effective self-regulatory body that can facilitate the organisation of the builders/developers/contractors and help prepare a uniform set of rules/regulations and definitions for the consumers. This can also serve as the first redressal point for the consumers as well as for the authorities to discuss issues pertaining to the sector.
At present, generally, every expensive industry/product has a certification of standardisation, ISI mark, for consumer satisfaction, except the housing sector. This issue also needs to be examined, as housing utilises the life-savings of most consumers in India. A Housing Ombudsman in each state could help in addressing the issues pertaining to house owners and instill confidence in the market.
Fiscal stimulus for housing
The government could guide financial resources into the housing sector and that could help the economy to grow. This can be facilitated by fiscal incentives like providing a tax rebate for a first time buyer. To encourage utilization of modern technology in construction, tax breaks for stipulated time period, can be offered for housing with new environmentally sound, low cost, affordable, high rise and light/efficient construction material. The government could also consider tax incentives on the import of modern technology and raw materials for affordable housing which incorporates concerns about global warming and climate change.
Indices to guide the markets
The housing price indices are released by the National Housing Bank (NHB) and RBI. The index prepared by the NHB is more extensive though it comes with a long lag. The problem is that the trend indicated by the indices released by the two institutions is not similar and, therefore, the usefulness to the consumer is impacted. There probably is also a need to have a quick housing index, like the wholesale price index which is released quicker than the consumer prices and is indicative of the price trend on a near real time basis. Also, it may be useful to construct housing indices separately for the EWS and LIG, as these are very different segments in the housing sector and cater to different clients.
As land is the most important cost factor in the construction of a house in India and though the prices of land have been rising rapidly across the country, there is no database on the same available in the market. A land price index can help in furthering transparency.
To conclude, there is a need to examine the housing sector closely as housing has been a factor in disgracing many economies across the world. India should exploit the pent-up demand in housing for the weaker segments of the society. This exercise will help to stimulate demand in the economy and lead us again to a higher growth path.
The author is RBI Chair Professor, IIM-Bangalore. Views are personal