Pune Real Estate: Issue of Illegal Constructions Resurfaces

The issue of illegal constructions has resurfaced on the agenda of civic bodies. Pune Municipal Commissioner Mahesh Zagade, who found out that there was only one building inspector per ward office to keep check on construction activity has decided to set up a new system for tackling the issue of illegal constructions. On the other hand in the neighbouring Pimpri-Chinchwad, 25 corporators who have constructed illegal buildings find themselves in the dock as the state government has asked Dilip Band to probe the matter and suggest necessary action.

“There is no doubt illegal construction has come up in the city in last few years. There is one building inspector for each ward office who has the responsiblity of checking the construction related activities. The person has to check construction that comes up as per the permission and also tacke action against illegal construction. It is a difficult job for one person,” said Zagade.

Zagade said the construction activity is at peak in the suburbs while very minimum in the old city area. “Thus, there is a plan to shift the manpower available to the ward office that has more construction activity from the place where there is not much work,” he added.

The municipal commissioner has directed all the zonal commissioner to prepare list of illegal constructions in their jurisdiction so that action can be initiated against them.

Realty Bubble To Escape Action

An extraordinary sharp rise in property prices and robust growth in banks’ housing loans portfolio is drawing attention of policymakers, economists and bankers said this week.

It is not clear whether the Reserve Bank of India, in its mid-quarter policy review on Thursday, will take more than cognisance of these developments that have impact on the effectiveness of its battle against inflation. Some economists believe RBI won’t impose curbs on bank credit to realty sector although housing inflation is fed by easy availability of banks loans.

Not that it has ignored this development.

Late August, the central bank’s annual report noted, “Although housing prices witnessed correction during the global financial crisis, there was a sharp rebound in the subsequent period.”

“Greater pace of rise in asset prices continued to remain a concern from the standpoint of macroeconomic management,” the report said.

Realty bubble

Rising property prices in past one year have raised fears an asset bubble may be forming in real estate sector.

Reliable data on housing prices is limited. According to Makaan.com, a website on real estate, property prices in Mumbai and Pune rose 10-14% in the year to July 31. In Delhi’s National Capital Region, prices were up 30%. An official indicator of housing prices is the consumer price index for urban non-manual employees (CPI-UNME). This puts housing inflation at 33% from a year ago in June.

The escalation in property prices “is somewhat out of sync from fundamental viewpoint”, said Abheek Barua, chief economist at HDFC Bank. In the past, RBI has increased risk-weights on banks’ loans to real estate to limit lending to the sector. RBI hiked risk-weight on advances to commercial real estate sector to 1% from 0.4% in October 9. Rating agency Crisil’s economist dismissed ideas the banking regulator would impose stricter sanctions on real estate loans in Thursday’s policy.

“Real estate prices have been on RBI’s radar for some time,” acknowledged Dharmakirti Joshi, chief economist of Crisil. But “I don’t think there will be any major changes (in real estate lending norms) on September 16,” he said, noting, “There are still downside risks to the economy.” For some, spike in home prices mirrors growth in economy, and therefore there is no need for RBI to up the ante on housing.

“I don’t think there is any bubble in property prices at this point of time,” said Madan Sabnavis, the chief economist of Credit Analysis & Research, also a credit rating agency.

“Overall, if one takes a sanguine view of the Indian economy, things are looking positive. So it is natural realty prices will also go up,” he said. “I don’t think RBI needs to act or will act immediately. But if this upswing (in property prices) persists, RBI may act accordingly,” he said.