The Great Real Estate Paradox Mumbai, the city of dreams. A city that never sleeps, whose infectious energy keeps the candles burning way past bedtime. It’s also incidentally a city which continues to defy the laws of supply and demand. A city where basic market forces hold no ground. It has left the best of the best economists perplexed for ages. Just what is the great real estate paradox. In this city of Mumbai, its the constant search for property & while finding property is not difficult, mind you. It’s the heartburn and various other cardiovascular diseases associated with learning how much that property will cost you, that’s to blame. 2012 has been hailed by many as the resurrection of real estate. After a largely lackadaisical performance in 2011, many economists were of the opinion that consumers would get what they want - a reduction in property prices, but sadly that doesn’t seem to be happening. Which brings us back to the question at hand, why have property prices remained so resilient. Some blame the RBI. That’s right the Reserve Bank of India has been tweaking the repo and reverse repo rates for the last 6 months now, effectively making home loans a lot more costlier adding to the stress levels of the general public and developers alike. But is that really the problem. A simple demand- supply comparison will tell you the story. There is a supply crunch for homes in the city due to which developers are plying their trade in areas like Boisar, Navi Mumbai, Dahanu etc. The demand for homes in the city is staggering, however property prices are even more staggering. Picture this, in Mumbai a 1,000-sq ft flat now costs Rs 98 lakh at over Rs 9,716 per square foot (sq ft). It’s no wonder that MHADA flat registrations see longer lines than the population of New Zealand. So consumers, hold back their desire for a new home conspicuously waiting for prices to fall. Well this year so far has not brought any surprises for home buyers. Middle class families are hopeful however about redevelopment and guaranteed safer and better homes. So what’s with these darn property prices. Another prominent explanation and what may lead us to the crux of the issue is corruption. Anna Hazare may have consigned himself to slapping the corrupt in a marked shift from his Gandhian ways as a means to deal with a fledgling anti corruption movement, but builders haven’t relented in the year 2012 in black money dealings. Politicians invest black money in property and it is in their interests to keep property prices high. Politicians also pressurise bankers to go soft on loan defaults by real estate promoters and that leads to the promoter being able to maintain prices despite a clear lack of demand. But the government has an answer to that as well. If you haven’t heard it, its called the Real Estate Regulation Bill. Pretty simple to gauge what its all about, but under the name lies a bill wrought with immense consequences for the real estate sector. Will the introduction of the bill mean the end of black money and corruption? Many developers are quick to point out that the bill has a number of issues which need to be sorted out and unsurprisingly enough this is the most hotly anticipated event in 2012. Finally, let’s look at investment in real estate as a possible reason for high property prices. Investment is generally made for higher profits and better returns. Who benefits the most then if property prices are sky high. You guessed it right! It’s the investors. NRI investment in real

estate property has gone up over the last 2 years, as foreign players pump their dollars and euros in the Indian realty market and when that happens it brings with it the pressure to keep property prices high so as to get the best returns on investment. The great real estate paradox is one which has to have a logical end in sight. However not even the Mayans can predict this end. Till then middle class citizens will have to wait and watch the real estate space for more.