RBI Governor makes case for cut in property prices

Reserve Bank Governor Raghuram Rajan on Thursday made a case for reduction in property prices given the high inventory of unsold flats across the country.

"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 stabilized more people will be willing to buy," Dr Rajan said.

I thing we need the market to clear and with growing unsold stock we need to figure out ways to do it," he added.

The Governor said banks should 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," Dr Rajan said.

The RBI Governor was speaking with State Bank of India boss Arundhati Bhattacharya at an interactive session in Mumbai.

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• If this is a signal to banks to go tough on developers (i.e. not keep rolling over maturing debt via new debt), this could result in sharp correction in property prices.
• Many developers have been borrowing to service the interest on their debt.
• If new debt is frozen, the only way they can avoid default is by cutting prices to push inventory.