New Delhi: India’s largest real estate developer by market value, DLF Ltd said the high interest rate on home loans has slowed down the demand for homes and properties.
“I want the interest rates to be reduced,” Kushal Pal Singh, chairman, DLF Ltd said. “The moment interest rates drop, people will come forward to buy houses.”
The Reserve Bank of India has increased the interest rates on home loans by almost 400 basis points since January 2006 to cool the property market. Home loan rates have moved up from 7.50% to 11.50% in the last two years.
DLF Ltd chairman Kushal Pal Singh
“Due to the increase in the mortgage rates, the market has got subdued at this moment temporarily,” Singh said, adding, “there is a slowdown on the mortgage side of the market.”
Singh, who made his name and money building up Delhi’s southern suburb, Gurgaon, is among those who have benefited from the three-year boom in real estate in India. Lower lending rates three years ago, coupled with tax breaks for house ownership and rising salaries, helped boost real estate prices three times in this period. Singh started developing Gurgaon in the late 1980s when land values were still at throwaway rates. Now high-end flats in Gurgaon can sell for as much as Rs3 crore a unit.
The real estate tycoon, who released industry lobby Associated Chambers of Commerce’s (Assocham) report on real estate said the central bank’s tight monetary policy aimed at controlling inflation, has made it difficult for people to buy property. “Liberalize the mortgage market and make it easy for people to take loans,” he added.
Spiralling prices which have also dampened the appetite for real estate have been driven by high land prices. The only way to bring down land prices is by increasing the floor space index (FSI), Singh said.
FSI is the ratio of the total floor area of buildings to the size of land.
In order to limit indiscriminate high-rises, some of India’s top cities have a limit on the number of floors people can build. There is also a rule that requires a certain amount of space to be left unbuilt. As a result, the build-up is less dense than in other parts of the world.
“Antiquated town planning laws are responsible for high prices. If floor space index is high, land prices will crash as the supply will increase,” Singh said.
India’s floor space index norms are skewed in a manner which encourages developers to make premium houses where the margins are high, Singh said. “The floor space index in a city such as Delhi is around 150(%), whereas it is 600-1,000(%) in places such as Shanghai, Malaysia, Singapore,” he said. “I would say the FSI should be at least 400-500(%) in India.”
With funds becoming costlier, there has been a significant slowdown in speculative buying, the Assocham report said. The resale market has seen a drop of 60% in sales in Mumbai, Delhi, Kolkata and Bangalore compared with a 35-40% growth in May 2006, it said.
“An increase in supply will automatically bring down speculative buying,” Singh said.
He also urged the government to regulate real estate brokers. “Today anybody can be a broker. There should be trained brokers,” Singh added.