Real Estate Bubble Building- NHB Cautions Banks

The National Housing Bank (NHB), the regulator for housing finance companies, on Monday advised lenders to exercise caution on lending to high-value properties, even as it warned that a potential real estate bubble was building as residential prices in several regions in the country were breaching their lifetime highs. “There is some sort of real estate bubble building up in the residential property market in several regions. I expect banks and other institutions to show their due diligence before providing high value loans,” RV Verma, chairman and managing director at National Housing Bank, told Financial Chronicle.
Verma, who took over at the helm of NHB recently, also said developers should be cautious not to hike prices and instead should launch more projects that are appropriately priced. In the past three quarters, residential property prices have grown by over 10 per cent in the National Capital Region (NCR), 12 per cent in Kolkata, 13 per cent in Bangalore, 10 per cent in Chennai, 13 per cent in Pune and over 20 per cent in Mumbai, according to real estate consultants Jones Lang Lasalle India.
Verma said a cautious approach was needed to ensure that a repeat of the crisis in the housing market in late 2008 is not repeated. “I expect the real estate firms to be mature and not repeat the mistakes of 2008,” Verma said. The global markets went tumbling in 2008 as sub-prime real estate lending in the US created several defaults forcing the valuation of assets crashing down by over 50 per cent. Several banks and insurance firms were on the brink of bankruptcy including Citibank and AIG. Lehman Brothers has already filed for chapter 11 bankruptcy protections in the US.
In 2008 and 2009, Indian banks put curbs on lending to the real estate sector. The prices of some residential projects in Gurgaon have reached Rs 7,000-8,000 per sq ft, which in some cases is higher than the previous peak seen in the city. In central Mumbai, prices for some projects have risen to Rs 20,000-25,000 per sq ft. Verma said NHB is looking to increase its loans disbursements by about 23 per cent in 2010 to Rs 10,000 crore compared with last year’s Rs 8,160 crore. It announced its annual results for the year ended June 30 and posted net profit of Rs 280 crore