It doesn’t sound right at all — this concerted policy thrust on housing. Starting with the Budget, the Government and the Reserve Bank have unveiled five sops for the real estate sector: ₹7,060 crore for smart cities (whatever that means); tax relief for Real Estate Investment Trusts; tax rebate on the principal and interest payable on housing loans; lower investment threshold for FDI in real estate ‘townships’; and exempting loans for ‘affordable housing’ from CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements.

It is argued that this supply side push will create more housing stock and lower prices. That’s rich. Economic slowdown and rising unemployment over three years should have brought down housing prices by releasing unsold stock. But prices remain absurdly high, and policymakers do not seem to mind. How else can an ‘affordable’ house be priced at ₹40-50 lakh (RBI’s definition) in a country with a per capita monthly income of barely ₹6,500?

There is a rhinoceros in the room that the RBI and Government do not want to see: a cabal, from the neighbourhood broker to the local politician and large corporates, has managed to contain inventory costs and hold up prices. In the absence of genuine demand, this is only possible with access to unaccounted money. A secondary factor is that banks have been chary of releasing houses of defaulters, fearing a crash that may affect its recoveries.

Now, with cheaper credit, and the usual access to foreign and domestic black money, the cabal’s game of managing stocks and rigging the market becomes easier. Demand will remain low as long as the slowdown continues (and tax breaks on home loans won’t help when there are no jobs going around), but ‘affordable housing’ prices will stay firm. Those seeking a house as a roof over their heads are pushed into the grey market of unauthorised colonies. For others, housing is an inflation-beating investment.

There are two ways to prick this bubble: Squeeze access to funds by cracking down on round-tripping (for that, impose GAAR); and empower the income tax department to buy a property at its registered value where it is lower than the market price. Prices will fall to affordable levels. But which government is interested?

Senior Assistant Editor

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