'RBI's move aimed to curb property prices, asset bubble'

Realty developers and property consultants today said that Reserve Bank of India's (RBI) monetary measures are aimed at controlling property prices, which have gone up sharply in big cities, but feel that improving housing supply alone can prevent the creation of asset bubble.

Realty firms and property consultants are also of the view that RBI's decision to increase provisioning for teaser home loans and loans of Rs 75 lakh or more would not have any impact on property demand and prices.

"RBI thinks such measures will control prices. In our view, prices can only be controlled by improving the supply," the country's largest realty firm DLF Group Executive Director Rajeev Talwar told PTI.

Talwar emphasised on providing easy credit flow to the housing sector. He said property demand would not be affected due to RBI policy as economic growth is strong.

Reacting on the policy, Parsvnath Developers Chairman Pradeep Jain said it "is designed to check the creation of pricing bubble in the market".

However, Jain said the RBI's move will not have any impact on demand as the same depends on economic development.

"Our economy is growing and sentiments are positive. What is required is to increase supply to curb inflation," he observed.

Concerned over teaser home loans, the Reserve Bank today increased the standard asset provisioning by commercial banks for all such loans to 2 per cent from current 0.4 per cent.

It also directed banks that the Loan To Value (LTV) ratio in respect of housing loans should not exceed 80 per cent. Besides, RBI increased the risk weight for housing loans of Rs 75-lakh and above to 125 per cent from 100 basis points.

"The loan value restriction has been brought down to 80 per cent which will certainly check flow of fund in market," Jain said, adding that teaser loans might be removed.

Global property consultant Jones Lang LaSalle Meghraj (JLLM) Country Head Anuj Puri pointed out that RBI has come down "heavily" on the realty sector "as there is too much euphoria going on in larger cities such as Delhi and Mumbai where prices have risen to the pre-recession level or even more in some locations".

"Clearly RBI believes that there is speculation going on and they want to curtail down," Puri said, adding that there would not be any impact on demand and prices owing to festival season.