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Real estate update: RBI's latest step won't be a show stopper

  • Om Ahuja, JLL India
  • Feb 20, 2012, 15:25 PM IST

The article has been written by Om Ahuja, CEO – Residential Services, Jones Lang LaSalle India. To read more by him and other real estate experts, visit www.joneslanglasalleblog.com/realestatecompass.
RBI's latest notification says that stamp duty, registration and other charges should be excluded while calculating the value of a property. This is expected to have a short-term impact and is unlikely to turn out to be a show stopper. Evidently, RBI is attempting to introduce and additional element of caution in ensuring that end users and investors do not over-leverage in the property purchase process. Land costs are actually a bigger problem, since they have shot up considerably in recent times. This is far more pertinent, since land forms 70-80% of the total cost of a property in our large cities. In comparison, the mortgage aspect is minimal and can be borne with greater ease than increased property rates.
In the short term, RBI's move may lead to a slight reduction in home sales. However, buyers will be reconciled to it in the medium to long term. In the final analysis, the added expense is still an investment into a high-value asset, and the home loan burden reduces proportionately.
With respect to the finance ministry's proposal to double the tax deduction limit on interest on home loans to Rs 3 lakh per annum, this is indeed a welcome step. However, it is a fact that home sales have already slowed down in India over the past few quarters, primarily because property prices have risen considerably. Unless there are clear policy changes, especially in terms of making land available to developers at reasonable prices, the benefits of this measure will not percolate down to the common man. Today, the combined incomes of married couples may have gone up, but the same cannot be said about the affordability of homes. The earlier benchmark of a five-year joint annual income equalling the value of an apartment certainly does not hold true any longer.

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