Rise in Indian House Prices gives relief to Affordable Units.

Developers were largely disappointed with the country’s budget for 2012.  They had hoped the budget would have included more incentives for the development of affordable housing. Still, several of the key budget items were aimed at stimulating capital for new residential projects.

In the world, Housing prices in India are the highest, as per the most recent research from London-based Lloyds TSB International Global Housing Market Review.  Prices in a country of 1.21 billion residents have increased 284 per cent since 2001.The Lloyds report ranks Russia and South Africa with the second and third highest housing prices.  Prices in Russia are up 209 per cent over the last 10 years; in South Africa, they are up 161 per cent. Last year alone, prices in India rose by nine per cent, according to the Lloyds report.

External Commercial Borrowing (‘ECB’) doors are proposed to be made open for specified low cost affordable housing projects which could potentially provide the much needed liquidity to the housing sector. Further, the interest to be paid by developers on ECB loans available from July 2012 to June 2015 will drop to 5 per cent from the existing rate of 20%

While many in India’s real estate industry were hoping for a strong regulatory and effective policy framework which would have helped boost the real estate sector, the Union Budget 2012 falls short of expectations, according to several financial analysts.

Analysts in India also note that one of the major budget proposals which may have a huge cash-flow impact to the real estate sector relates to the deduction of a 1 per cent tax on the purchase of certain land parcels in urban areas. The measure would also help to close deals where instalment payments are agreed to by buyer and seller.

However, with the expected increase in liquidity through the availability of ECBs and the availability of higher deductions for the development of affordable housing generally, the real estate sector may see a surge in activity this year from an otherwise stagnant growth pattern, according to several analysts.

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