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Real estate: Economic de-growth and unaffordable housing

Lack of sales and the piling up of inventory has led to a decline in construction which is affecting economic growth of the country, said Pankaj Kapoor. Speculation had driven up real estate prices, which make real estate unaffordable for the consumer

 
Speaking at the 124th event conducted by Moneylife Foundation, this time on the “Maharashtra Housing (Regulation & Development) Bill, 2012”, Pankaj Kapoor, managing director of realty research firm Liases Foras, spoke on the current real estate market scenario and if there would be and further correction in real estate prices.
 
“The inventory is huge and sales are not going up,” said Mr Kapoor. He pointed out that since March 2010 the inventory in terms of area developed has been on a rise while sales have remained stagnant. The inventory has gone up from 80 million square feet to 131 million square feet from March 2010 to June 2012. Sales per month in the same period have gone down from 12 million square feet to 10 million square feet. Majority of the sales have happened at a particular level and a demand shift has not taken place.
 
Surprisingly, despite sluggish sales, realty prices have been going up as well which is due to speculation. The pace of construction pace is coming down which will have an impact on the whole economy. The cement industry and the steel industry, which are dependant on the construction sector, would be badly hit as well and this would hamper the GDP growth of the country, he pointed out. The construction pace in the Mumbai Metropolitan Region has fallen by nearly 52% from the second half of 2009 to the first half of 2012.
 
Looking at the inflation adjusted price index and the interest adjusted income index, which shows whether real estate prices are affordable the current income level, Mr Kapoor showed that the gap between the two has been increasing. “The way the prices are going up, people are unable to afford homes,” he said. Even if interest rates come down the prices would have to undergo a 32% correction to reach parity and create an economic balance for the real estate sector and this looks very difficult.
 
The government has been looking to create affordable housing but has failed to do it, and prices have gone up further. A lot of money in the sector was brought in on the pretext of creating affordable housing. But a lot of this money has increased speculation due to which the land prices have gone up and have created an asset bubble. Developers do not want to cut down on their profits, investors want their own share of the cake and at the end of it the consumer has to bear the brunt by paying higher prices, Kapoor pointed out.
 
Taking a longer view of the market, corrections started taking place when the value went up and were much higher than the market productivity. This led to the acceptance of very high valued securities and a greater exposure to risk. Correction will come through a combination of time and price. Black money will act as a buffer to price correction, he lamented. 
 

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S&P says power outages underline need for urgent infra funding

The recent massive power failure highlights India's poor power infrastructure and to the urgency of improvements, the ratings agency said

 
Mumbai: Ratings agency Standard & Poor's (S&P) on Wednesday said there is an urgency of improvements in the power infrastructure, which was highlighted in the recent massive outages that had left nearly 800 million in dark for two days, reports PTI.
 
"The recent massive power failure highlights the country's poor power infrastructure and to the urgency of improvements," S&P said in a report titled 'Adequate infrastructure is essential to lighten India's power woes', released here today.
 
Late last month, the Northern, Eastern and North Eastern grids had collapsed leading to power failures in 20 states affecting nearly 800 million people, for two consecutive days.
 
"The blackout was, in our view, a consequence of capacity growth and infrastructure improvements that severely lag the demand for power," rating agency's credit analyst Rajiv Vishwanathan said.
 
However, the lack of fuel security is a major constraint to the growth of the generation capacity, and the slow pace of tariff reforms is hindering infrastructure investment at the state-level, he said.
 
According to the report, the aggressive economic growth targets for the next five years will add to the already high demand for power.
 
"This calls for a significant increase in funds to the sector. Power capacity has increased about 41 percent over the past decade. But, while the government has increased funding allocations to the sector in its recent five-year Plans, it has consistently failed to meet its planned capacity expansions," the report said.
 
Standard & Poor's further said the government isn't placing enough focus on improving the inadequate transmission and distribution infrastructure, particularly at the state- level, despite the large increase in installed power capacity.
 
"Although the recent outages were the only reported mass blackouts in the past 10 years, the stability of the transmission network has been managed through rotating power cuts--a less than optimal solution," it said.
 
Vishwanathan further opined that the weak credit quality of the downstream distribution companies, which the state electricity boards largely control, is a major hindrance to investment in the sector.
 
"Political resistance to tariff increases has often prevented generation companies from fully passing through cost increases, particularly for fuel, to the end customers.
 
Subsidies on power tariffs and free power to certain sections of the population have widened the chasm between tariff revenue and the cost of power supply to distribution companies," he said.
 
Even though some states have taken steps to increase distribution tariffs, due to the slow pace of implementing tariff reforms, only a gradual improvement in the finances of state utilities may be possible, it said.
 

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Advani dubs UPA-II 'illegitimate', forced to withdraw remark

Advani admitted that he made a mistake by speaking about UPA-II and what he actually intended to say was the 2008 vote of confidence secured during the UPA-I

 
New Delhi: The monsoon session of Parliament started on a stormy note on Wednesday when Bhartiya Janata Party (BJP) leader LK Advani triggered an uproar by dubbing UPA-II as 'illegitimate' but was forced to withdrew the remark after strong protests from Congress led by Sonia Gandhi, reports PTI.
 
"The UPA-II is illegitimate. It has never happened in the history of India .... crores of rupees were never spent to get votes," Advani said, provoking the treasury benches during a debate on an adjournment motion he had moved on the recent violence in Assam.
 
The Congress President and UPA chairperson displayed some unusual aggression in the Lok Sabha when she made clear that she would not countenance Advani's description of the government and egged on members of the treasury benches to demand its withdrawal.
 
The House was locked in uproar as BJP members launched a counter attack but Gandhi had one simple demand. "Withdraw, withdraw one word, withdraw," she said signalling the whole matter could be resolved.
 
The noisy scenes were witnessed when Advani, who was allowed to move his adjournment motion on the Assam violence, courted trouble in his speech when he said "I consider UPA II is illegitimate".
 
Gandhi's protest and and her message to the ministers and the Leader of the House Sushil Kumar Shinde was enough signal for the Congress and other UPA MPs to rise to their feet demanding withdrawal of the word. 
 
Advani's attempt to convince the House that he was not referring to the government after the 2009 elections but to the 2008 confidence vote in the House on the nuclear deal issue for which "crores of rupees were spent" to save the government.
 
This did not not cut ice with the Congress and UPA members who demanded that the BJP veteran withdraw the remarks.
 
As an angry Gandhi was demanded its withdrawal, Leader of Lok Sabha and Home Minister Sushilkumar Shinde appealed to him to withdraw the word.
 
"Advani is a senior leader. We all respect him. But today he has said the entire (2009) election was illegitimate. This is an insult for all of us. I think he should withdraw his words," Shinde said in his first intervention as the Leader of the House.
 
The Speaker also reminded Advani that she had allowed adjournment motion as people were concerned about the situation in Assam.
 
"But one word used by you has hurt the sentiments of everyone. If you want, you can withdraw it."
 
Advani admitted that he made a mistake by speaking about UPA-II and what he actually intended to say was the 2008 vote of confidence secured during the UPA-I.
 
"My comments were on the confidence vote and not on election. ... Those who were whistle-blowers were sent to jail," he said, "I withdraw the word illegitimate."
 
With the din continuing, the Speaker adjourned the House for lunch. When the House reassembled after lunch, the Speaker observed that Advani has withdrawn those remarks and they would not form part of the records. 
 
Responding to the vociferous protests by Congress, DMK and Trinamool Congress members, Kumar had earlier asked Advani to withdraw his remarks and said she would go through the records and expunge any objectionable or unparliamentary word.
 
Before the adjournment, the senior BJP leader said he was referring to the alleged cash-for-vote scam that saw BJP MPs displaying wads of cash in the Lok Sabha during debate on the confidence motion, which they claimed was paid to them for voting in favour of the government.
 
The Treasury benches, including ministers, were on their feet protesting Advani's remarks, with Parliamentary Affairs Minister P K Bansal forcefully pointing out that Advani was digressing from the issue on which he was allowed to speak.
 
"He has made extraneous remarks which has denigrated the Parliamentary system, the people and democracy," Bansal said.
 
Leader of the Opposition Sushma Swaraj clarified that Advani had not raised any unrelated issue and was only pointing out the failure of the government on economic and social fronts, including checking infiltration in Assam.
 
Even after the adjournment, the atmosphere remained surcharged in the House with Gandhi, who is also the UPA Chairperson, seen interacting with MPs and ministers.
 
Tempers were also frayed in the Opposition benches with some of BJP members accusing the Congress of making a mountain of a molehill and dragging the matter in spite of a senior leader like Advani withdrawing his words.
 
Some BJP members also warned that the House would not be allowed to function smoothly if the Congress attitude remained as it was today.
 

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