Impact of financial regulations on the real estate sector in India

Abstract

The real estate sector in India is currently one of the fastest growing markets of the world. Playing a significant part in the national economy, the real estate sector is major contributor to the national GDP. This industry has been growing rapidly for the past few years and is projected to continue this trend and is one of the major source of FDI in the country. The sector is highly susceptible to the macroeconomic conditions and the financial regulations in the country. It is impacted by the monetary policy in terms of cost and availability of funds, the structural policy in terms of foreign funds inflow and ease of business, prudential policy in terms of bank exposures and fiscal policy to some extent by way to propensity to consume. The project looks at each of these effects in details in the first part. In the second part, the project tries to quantify a relation between policy rates and real estate price indices such as RPPI and RESIDEX, to understand the quantum of this effect and the lag in transmission. Finally, the probable existence of a real estate bubble in the nation, and the various theories pertaining to it are discussed.