Economic Survey 2017: Property Prices Will Fall, Loans Will Get Cheaper

Economic Survey 2017: Property Prices Will Fall, Loans Will Get Cheaper

Economic Survey 2017: Property Prices Will Fall, Loans Will Get Cheaper
File photo of Chief Economic Advisor Arvind Subramanian. While the growth projections have been estimated at 6.75-7.5 per cent for the financial year 2017-18, the Economic Survey predicts property prices across eight major cities will fall. (Flickr/PopTech)

While addressing the Joint Session of both Houses of Parliament to mark the start of the Budget Session, President Pranab Mukherjee declared the government was committed to achieving its aim of providing the Housing for All target by its stated goal of 2022.

"My government is working hard to alleviate poverty, boost financial inclusion, improve the quality of life, increase access to sanitation and clean energy," the President said, while hailing Prime Minister Narendra Modi’s decision to make illegal high-value currency notes. The demonetisation move and its various benefits would come at some cost though as narrated in the government’s Economic Survey of 2016-17.

For the uninitiated, the economic survey is an annual document that reviews the developments of past 12 months, evaluates the performance of government schemes and predicts the course of the economy in the short-to-medium term.

Uncertainly, around the future action forced businesses and households to stay put, adversely impacting growth after the note ban. However, the cash squeeze and the temporary slowdown are going to pave way for a brighter future.  The government believes that the cash supply issues will cease to exist by April-end.

To increase the benefits of demonetisation, the Centre should quickly remonetise, bring real estate under GST's (Goods and Services Tax) ambit, reduce taxes and provide a stable tax regime, Chief Economic Advisor Arvind Subramanian has written in one of the chapters.

As things come back to normal, the economy would be back on track, and so would the real estate sector. It is worth mentioning here that the sector has been battling a slowdown for about three years now, and despite a nil price movement, buyers are still reluctant to make a move. 

Time for a "realty" check

While the growth projections have been estimated at 6.75-7.5 per cent for the financial year 2017-18 (FY18), the Survey predicts property prices across eight major cities to fall further — prices declined after the demonetisation move. Prices will fall further, says the Survey, "as investing undeclared income in real estate becomes more difficult". This will have an impact on the secondary market where cash component was driving prices up. Primary sales with accountable income will remain stable. On the other hand the resale market, according to latest reports, has already seen a 20-30 percent drop in prices and is unlikely to fall further as properties are now being sold at circle rate.

The Survey adds that an "equilibrium reduction" in property prices is desirable and it will help provide affordable housing to the middle class. It would also facilitate labour mobility across India, which is at present hindered by unaffordable rents. As banks get comfortable with cash deposits, interest rates might also decline, making property purchases even more affordable, says the Survey.  The Survey also speaks about a reduction in stamp duty charges and other taxes to facilitate speedy recovery for the sector. However, the cost of taxes might go up once the real estate sector is brought under the ambit of the GST regime. Overall, things are already looking up.

Lesson for ULBs

Indian cities are often criticised for their poor infrastructure, and urban local bodies have a major role to play in this. The Survey points out that the below-par earnings of urban local bodies are a key reason behind the challenges every Indian city faces. By increasing their property tax collections, urban local bodies could fight financial crunch effectively and work better towards improving a city’s overall infrastructure, says the survey.  Government studies show cities such as Bengaluru and Jaipur are currently collecting only 5-20 per cent of their respective potentials for property tax. Use of satellite imagery could be promoted to ensure property tax compliance, the Survey suggests.

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