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The Supreme Court ban on all construction activities in Maharashtra, Madhya Pradesh, Uttarakhand and Union Territory of Chandigarh will increase property prices and adversely affect infrastructure development at a time when the real estate sector is already reeling from its worst slowdown since 2008.
A bench, led by Justice Madan Lokur, on Friday announced the ban citing the failure of these States and the UT to implement a solid waste management policy. The ban may have dimmed hopes of a revival for the sector.
“The ban has the effect of bringing an entire industry to a standstill. Nearly a thousand industries are interlinked with construction and real estate. While the ruling will have far-reaching economic and social impact, any cessation of housing supply will lead to an escalation of property prices, hurting the government’s target of Housing for All,” Liases Foras MD Pankaj Kapoor told BusinessLine .
Niranjan Hiranandani, co-founder and MD of Hiranandani Group and President of Naredco, said that a blanket ban on construction will have a negative impact on housing. “It will choke supply and impact home seekers. Effectively, home buyers will suffer because some State governments have not notified the policy.” He said it would have been better if the order had penalised the State administration and barred new construction while allowing on-going projects to be completed.
In a similar case in October 2013, the National Green Tribunal had passed an order that no construction activity be permitted within a 10-km radius of the Okhla Bird Sanctuary in Noida. Over the next three years, over ₹ 3,000 crore was wiped out from the local economy, and property rates in the region soared from ₹3,000 per sq ft to ₹6,000 per sq ft.
Similarly, in 2005 in Mumbai, when the State government tagged large tracts of land in Mulund, Bhandup, Nahur and Mahul as forest land, the residents had to fight a legal battle for nine years. Meanwhile, property prices outside these zones more than doubled as supply was constrained.
“This ban too will lead to unaffordability, inequality and economic disorder,” Kapoor added.
Multiplier effect
The three States and Chandigarh, where the ban has been imposed, account for about 35 per cent of the national real estate market. “While customers will face delays and continue to pay both EMI and rent, builders will run out of cash as inflation and cost of capital will increase. This will create a vicious cycle of slowdown,” Kapoor said.
“The stay will have a direct impact on daily wage earners in the industry and the country’s GDP could also suffer,” said Getamber Anand, Chairman, CREDAI National.
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