Reserve Bank of India Deputy Governor SS Mundra on Wednesday said there is enough scope for housing prices to come down from the current highs because there is a huge pile-up of inventory.
Pointing out that the cost of houses is still very high, Mundra said improving the affordability of houses is important in a country where more than 60 per cent of the population lives on less than $2 a day.
Referring to the counter-argument that taxes account for 22 per cent of the housing cost, the Deputy Governor said, “More progressive construction technologies and several other measures can make it possible to make houses less costly than what they are today.”
Mundra’s comments come in the backdrop of the huge housing shortage in urban India, which was estimated at 18.78 million in 2012 and is expected to touch 30 million by 2022.
Of the total housing shortage of 18.78 million in urban India, the shortage in the economically weaker sections and lower income group categories was 10.55 million and 7.41 million, respectively, according to the report of the Government’s technical group on urban housing shortage.
Regarding the demand from individuals for second and third houses, Mundra observed that at this stage of the country’s economic development, bank credit is needed more for creation of productive assets.
“We would not like to create a situation whereby there is artificial demand in the housing sector, he said at a conclave organised by the National Real Estate Development Council.
Mundra said given the relatively better asset quality in the housing and real estate sectors, banks have a natural incentive to keep on lending to these segments.
On the common refrain that commercial banks have stopped lending to the housing and real estate segments in the last four-five years, the Deputy Governor said, “Our review of the extent of loans to these as a whole gives little contrary picture, indicating that loan growth in these segments has been quiet robust.”
Further, the asset quality in these segments is also relatively better.