Cut in housing prices can help clear unsold inventories, clean up banks' balance sheets: Economic Survey

Last Updated 31 January 2020, 13:47 IST

The residential property market is reeling under huge unsold housing stocks because of issues like stalled projects and delayed possession, but inventories can be cleared if real estate developers take a haircut and reduce apartment prices, according to the Economic Survey.

The balance sheets of banks and non-banking financial companies (NBFCs) would also be positively impacted if builders decide so, it added.

Pitching for correction in property prices, the survey said that housing prices are ruling at a high level, even as the growth in rates has been muted since 2015-16.

"Government's thrust on affordable housing is evident, in order to boost the real estate sector and consequently the construction activity in the country. Higher investment in housing by households may increase the fixed investment in the economy," the survey said.

"Existing unsold housing inventory can be cleared and the balance sheets of both bank/non-bank lenders cleaned if the real estate developers are willing to take a 'hair-cut' by allowing the house-prices to drop," it added.

The survey mentioned that the decline in household investment in 'Dwellings, other buildings and Structures' over 2011-12 to 2017-18 period reflects slower growth in purchase of houses by households.

"The real estate sector, and residential property in particular, has been reeling with issues of delayed project deliveries and stalled projects leading to a build-up of unsold inventory over the years. Housing prices have remained elevated, even though growth in prices has fallen sharply since Q1 of 2015-16 and remained muted since then," it added.

At the end of December 2018, about 9.43 lakh units worth Rs 7.77 lakh crore with 41 months of inventory were stuck in various stages of the project cycle across top 8 cities.

The survey highlighted that the government has approved the establishment of a 'Special Window' fund of Rs 25,000 crore to provide priority debt financing for completion of stalled housing projects that are in the 'affordable and middle-income' housing sector.

"Having duly recognized the financial stresses built up in the economy, the government has taken significant steps this year towards speeding up the insolvency resolution process under Insolvency and Bankruptcy Code (IBC) and easing of credit, particularly for the stressed real estate and Non-Banking Financial Companies (NBFCs) sectors," the survey said.

(Published 31 January 2020, 13:33 IST)

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