The major source of income from the real estate market is
Directions: Read the passage below and answer the question that follows:
Whichever way one looks at it, the fact remains that real estate has been the most profitable INVESTMENT in India over the last 30 years. It has consistently been the most lucrative business. In spite of all our socialist proclamations all these years, the truth is that unearned income from property, particularly capital gains from the appreciation of property has outperformed income from any other source.
Property prices only have gone one way up. Year after year, the rise is relentless. Each time one feels that the limit must have been reached, property prices only rise further. The result is that owning one's own home is a distant dream for most middle class Indians. This phenomenon is not only confined to the big metro cities, but inordinate price rises have swept through most smaller towns too.
The rise is so phenomenal and the damage to the psyche so great, that nobody believes that prices will ever come down. Even in this day and age of free market economics, nobody believes that supply can ever exceed demand to bring prices down. Few within the country understand what is happening to the real estate market, and visitors from overseas, describe the situation as just mad.
The only reason for this horrendous state of affairs is the complete bungling by both the central government and the state governments. Though the land is a state subject under the Constitution, at the behest of the majority of states, the Urban Land Ceiling Act was passed by Mrs. Gandhi almost 20 years ago. This compounded the problem of rising urban land prices due to excessively rigid rent control laws by state governments.
The result is that it is virtually impossible to get tenants, protected by the Rent Control Acts, to vacate premises. Therefore transactions in land are virtually frozen. When transactions in lands do take place, several governmental permissions are needed, particularly under the Urban Land Ceiling Act - at a huge cost in terms of money (usually illegal) and time. Obviously if there is not enough supply or very little supply, then even with a little demand, prices must go up inordinately. These very simple laws of supply and demand are taught to the students of economics in their very first lesson. The whole liberalisation process is based on the avowed philosophy of doing away with unnecessary controls, which do not work and only distort the markets. It has worked wonders with the economy. But the one area in which there is no sign of liberalisation is real estate. Clearly, there can be no excuses for this. If liberalisation as a policy is sound, then there is no reason why it should not work in the real estate markets too. The truth is that worldwide, including in major cities like London and New York, once rent control was abolished, there were major property booms which led to an over supply and a crash in prices. Surely the same thing can and must happen in Bombay and Delhi too.
The only excuse made for not abolishing controls in the field 'of real estate', is that it may not be ‘politically acceptable’. The question must be asked ‘politically acceptable’ to whom? It is only the politicians who would lose a major source of revenue. It is high time that a vociferous demand is raised and politicians are forcefully told that it is the astronomical real estate prices that are not politically acceptable either.