RBI governor Raghuram Rajan is right to prod real estate developers to start reducing prices to increase sale of their inventory, rather than to harp on interest rate cuts. But he is wrong to bar banks from offering teaser loans, which should be seen as a commercial decision solely within the realm of marketing choices that banks make.
Elementary economics says that when supply exceeds demand, you lower the price. But most realtors hold on, hoping to outwait the buyers. Moreover, India has not seen a property crash for many years, and globally, property has been prone to long cycles of price rise and fall. The country’s real estate market has partly been immune from price cycles due to the predominance of cash transactions in the sector. However, cash is not a choice for the salaried, who have become conscious of the prices they should pay. So, the market needs correction. However, builders say an increase in the cost of land and other input costs over the last few years does not give them leeway to bring down prices.
They are not wrong either. Structural rigidities are stifling the Indian real estate market. The main reason property prices have gone out of reach is the artificial scarcity of urban land. Policy should identify zones for urbanisation.
Change of land use, thereafter, from farming to commercial or residential must become automatic. Automatic conversion without bureaucratic interference and by cutting out middlemen will reduce the cost of land. The government should also improve the ease and lower the cost of doing business here, meaning, eliminate the layers of corruption that add up to real estate cost.
Teaser loans make sense for salaried borrowers, who often pay both a rent and the instalment on their home still under construction. When the home is ready for them to move in, and they no longer have to pay rent, they are okay with a higher rate of interest. Further, young people who buy homes also expect their incomes to go up in two-three years. Teaser loans suit the borrower and the lender. Why should the RBI say no?
Q.1. What is the reason for property prices to rise in the Indian real estate market?
(A) The reason for property prices to rise is due to the artificial scarcity of urban land
(B) The reason for property prices to rise is due to higher demand for land than supply
(C) The reason for property prices to rise is due to increased cost of land and input costs.
(1) Only A
(2) Both A and B
(3) Both A and C
(4) Both B and C
(5) All of the above
Q.2. Which of the following statements is/are FALSE in context of the above passage?
(A) When supply exceeds the demand the realtors lower the price to sell the property.
(B) India has not witnessed the property crash for many years.
(C) The country’s real estate market has partly been immune from price cycles due to the predominance of cash transactions in the sector.
(1) Only A
(2) Only B
(3) Both A and C
(4) Both B and C
(5) All are true
Q.3. Which of the following could be the appropriate step to reduce the cost of land?
(1) Change of land use, from farming to commercial or residential becoming automatic can reduce the cost of land.
(2) Automatic conversion without bureaucratic interference can reduce the cost of land.
(3) Eliminating the middlemen can reduce the cost of land.
(4) The government should improve the ease and lower the tax rates.
(5) Only 1, 2 and 3
Q.4. Which of the following is the special feature of teaser loans?
(1) teaser loans are mostly demanded by salaried class
(2) in teaser loans amount of instalment is not very high
(3) in teaser loans rate of interest is not very high
(4) Both 1 and 2
(5) All are the features of teaser loans
Q.5. SYNONYM
STIFLING
(1) easing
(2) suffocating
(3) difficulty
(4) amending
(5) complying
Q.6-10. REARRANGEMENT OF SENTENCES
A) Settlement in real time means the transaction is not subjected to any waiting period.
B) It is a funds transfer mechanism.
C) Moreover, as the money transfer takes place in the books of RBI it is final and irrevocable.
D) The acronym RTGS stands for Real Time Gross Settlement.
E) While gross Settlement means the transaction is settled without bunching it with any other transaction.
F) The transfer of funds takes place on a real time and gross basis.
6. Which of the following would be the FIRST sentence after rearrangement?
1. C
2. E
3. A
4. D
5. F
7.Which of the following would be the THIRD sentence after rearrangement?
1. B
2. F
3. C
4. E
5. A
8.Which of the following would be the FIFTH sentence after rearrangement?
1. E
2. A
3. F
4. B
5. D
9.Which of the following would be the SECOND sentence after rearrangement?
1. F
2. A
3. E
4. C
5. B
10.Which of the following would be the FOURTH sentence after rearrangement?
1. D
2. C
3. A
4. E
5. F
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