Friday, June 20, 2008

Bangalore's Builder Cartel - The city's developers are rewriting Economics

This is from a post in the Business Today (29/06/08) page 48
"Prices of a product fall if demand for it eases is what is conventional economics. But Bangalore's real estate market will defy that logic. Recent market surveys reveal that the demand has, by and large slackened, but all leading developers of the city have come together to pep market up by deciding to hike the price of their products. The price will go up between Rs 75 and Rs 500 per square foot, depending on the size of the flat." - the Karnataka Chapter of Confederation of Real Estate Developers Association of India (CREDAI) a real estate lobby has made an announcement to this effect.
When asked whether this was a cartel in the making ?
The reply was 'a cartel is one that cuts supply when the demand is robust. But, we are not limiting supply at all also we neither control individual members'
My understanding is that real estate demand beyond a point is not price elastic and if all is available at 'a jacked up' price what option does the buyer have ? What happens to the argument of free markets which all builders advocate when it comes to regulatory intervention in thier so called development projects etc ?
'Basic living facilities-real estate ' should this not be on par with essential commodities and even if not a part of it why should the state allow cartelisation ?
Despite formal reporting of such news, inaction on part of the regulatory bodies is frustrating. If the govt / citizen's group donot bother to set this right, markets am sure will take its own course over a period of time to ensure the bubble bursts (cartel are broken) but, that will surely be violent - hurting all, not just the culprits


Amol Agrawal said...

great post. We have been discussing this for a while. I don't think anything will be done unless the bubble bursts. Unfortunatley, that is the way policies work worldwise. Prevention is better than cure is only an adage, nothing more, nothing less

Atul said...

Builder Cartel - is not imaginery. It is a fact, not only in Bangalore but across country. Unfortunately, there are very big politicians as members of this cartel. Sometimes, I also feel that our beloved FM also is part of this cartel. Otherwis, why will he blame steel and cement industry cartel for increasing prices when the whole country is burning on increasing prices of everyday food items?

Very apparently, steel and cement industry has more direct impact on builders lobby, then the common man.