Property prices must fall: Rajan

Mumbai: In an interesting observation, Reserve Bank Governor Raghuram Rajan on Thursday made a case for reduction in property prices considering high inventory of unsold flats across the country.

Responding to SBI chairperson Arundhati Bhattacharya’s proposal for allowing ‘teaser loans’, Rajan said, "If real estate developers, who are sitting on unsold stocks, start bringing down prices, that will be a big help to the sector because once there is a sense that the prices have stabilised more people will be willing to buy.

I think with growing unsold stock we need to figure out ways to do it." Rajan also wanted the banks to explore ways to make home loans easier, but quickly added that property prices must fall before rates are brought lower. "We don't want to create a situation where prices remain high at a level that demand may not pick up to the extent necessary," pointed out Rajan.

Earlier, referring to teaser loans, Bhattacharya said, "I am told that real estate stock is at two-year high and I was thinking if it is possible for a little while...Could something of this (teaser loan) kind could be allowed given the fact that this is one of the portfolio where NPAs are the lowest."

Although, Rajan acknowledged the demand, but did not appear very keen to accede and said that the larger need is to push demand by a price cut by the builders. He made these comments at a time when the realty sector is struggling with low demand and rising inventory of unsold flats. Property prices in most of the cities have witnessed small corrections, while analysts felt there's further scope for decline in property prices.