The recent financial turmoil and declining real estate prices have been reported extensively in the media over the last few months. As a result many real estate investors have been left questioning the wisdom of their decision to invest in real estate and the safety of their current investments. While it is true that prices in many cities have become more realistic, it is difficult to predict whether there would be a further decline in the coming months.

However, the reported decline in real estate demand by a metro centric media reflects only the reality of the large Metro markets which are suffering from an oversupply in residential, retail and commercial spaces. In the smaller cities like Jallandhar and Amritsar demand outstrips availability of quality residential and retail developments. In other words it is a supply driven demand at work in the smaller cities.

Almost 80 per cent of real estate developed in India is residential space, the rest comprising of offices, shopping malls, hotels and hospitals. According to the Tenth Five Year Plan, there is a shortage of 22.4 million dwelling units. Thus, over the next 10 to 15 years, 80 to 90 million housing dwelling units will have to be constructed with a majority of them catering to middle and lower income groups. While the investors are holding back, the end-user segment will continue to fuel demand for affordable housing.

The government cannot ignore the fact that the real estate sector is the second-largest employer in the country. As a result, the Union government’s recently announced stimulus package, coupled with Reserve Bank of India’s (RBI) efforts, are expected to change the fortunes of the domestic real estate sector.

The RBI’s move of allowing banks to provide special treatment to real estate companies is likely to result in long-term benefits. The proposed cut in interest rate on housing loans to 8.5% and 9.25% can trigger a strong uptrend in sales in the residential market, particularly in the mid-income housing segment.

Measures such as according priority sector lending status to low-value loans, restructuring of loans taken for commercial property, and reduction in excise duty on input materials like steel and cement are all welcome steps.