You can blame speculators who are flipping property or builders who are after high profits, but it is the Government that is responsible for driving up home prices.
In the past, city authorities constructed low- and middle-income homes that were a boon to the common people. But over the years, housing development dropped low on the priority list of governments. Local governments even absolved themselves from the duty of providing civic facilities such as footpaths, parks and playgrounds.
This forces taxpayers to shell out to buy homes in projects with additional amenities such as parks, gardens and swimming pools. Even basic requirements such as water and power are not readily available, making citizens gravitate towards costlier options to avail these necessities.
Neither is there any urban planning so that homes can be developed where land is not at a premium. Public transport infrastructure is unfortunately always 10 years behind. Some argue that spreading out cities is not efficient as it requires additional infrastructure. Increasing FSI, the ratio of constructed area to ground area, is suggested as a superior solution.
Data from the new Housing Startup Index shows that multiple housing unit constructions are on the rise. However, we are ill-equipped to handle the explosion in population density, not to mention the related air and water pollution issues. Higher FSI will only exacerbate these imbalances, if the crisis in civic amenities is not addressed. Also, when FSI is increased, private land prices rise in tandem, nullifying any expected price relief.
Even simple decisions that can help lower prices are not taken. The approval process is stretched in metros such as Mumbai and Chennai for well over one year. The interest paid on the land investment adds to the cost, which is passed on to the hapless home-buyer.
Steps can also be taken to rein in speculation. For example, tax exemptions on the interest paid on second-home loan can be done away with. Capital gains tax can also be increased for those selling multiple homes. These rules have been tried successfully in other countries such as Singapore to curb the housing bubble.
Given that the urbanisation rate is set to jump from around 30 per cent currently to 40 per cent by 2030, the time to act is now.
Chief Research Analyst