Speculation on human necessity
Apr 17, 2023
Speculation on human necessity
Housing is a human necessity. In urban centres housing is a part of the flourishing real estate business, in which shrewd developers become richer. While most buyers are buyers of their dream home others are buyers of their dream of making money on the necessities of the homeless.
The latter is called investors who hold on to properties to sell later at a higher price. There was a time when home buyers used to believe their home, which they bought with their savings and mortgage loans, is both shelter and an investment. They expect the price of their home to double or treble over a period by the time they return their loans. That would make their decision of buying a home sensible. At the same time, where the sales realisation is less than the purchase price or less than the inflation-adjusted cost after paying off loans, the deal will prove disastrous. Today, with the number of units built and the overwhelming expansion of the real estate business at the very time the population is stagnating, the chances of a sky-high appreciation look narrow.
The development scenarios across the world are no different. In the absence of regulation, things can go out of order in all the countries where the real estate business made entrepreneurs, intermediaries and rulers equally rich.
Sometimes the real estate boom is not a natural boom. We have experienced this. China constructed many buildings in a short period which led to an oversupply. These buildings were eventually left vacant, leading to an economic crisis because of the ghost buildings.
This is a perfect example of why the government should carefully and thoughtfully manage real estate business and subsequent booms. Later, China began to demolish all of these structures to prevent an economic collapse. It understood the consequences of overdevelopment. These buildings have been standing for a long time without providing a return while causing more trouble than good. The ghost buildings have become a symbol of wasted effort and misuse of resources. China demolished the unoccupied buildings and made sure that nothing like this would ever happen again.
Canada recently implemented a control system to regulate the amount of available housing. It introduced measures like a two-year ban on foreigners purchasing apartments or commercial buildings in Canada, to manage the demand healthily and sustainably.
The same is true in India, where the real estate business is booming crazily and land prices are skyrocketing following the increased urbanization, an influx of migrants in urban centres, and rising incomes. Developers and investors created huge artificial demand hoping to make a huge profit in the long run. In many prime locations in India, people cannot afford to buy a home because of high land prices. Traders keep the land price high as they succeed in keeping up with artificial demands. People move far away to II and III-tier cities, which are yet to see developments.
With artificial price hikes, commoners are unable to buy a home in their preferred location. They move to other places, where they create demand for mass housing. But in all the locations over a period, there will be a demand saturation and price fall. Still, temporarily, artificial price hikes and demand generation by investors will create a vicious cycle of demand and supply, leading to higher land prices. Ultimately it would become impossible for an average person to purchase a good home. Buying a good home in a better location thus may remain a dream for most people.
The only solution to this issue is government intervention, being aware of the unnatural or artificial demand for apartments in real estate caused by speculation and investment.
I appreciate some decisions made by the Indian government to control the unnatural or artificial demand for real estate, which would make ordinary people afford flats, and stop unwanted investments. However, this system does not provide a long-term solution.
It is of paramount importance to ensure that any development activity is carefully planned, regulated, and monitored. To ensure that our current use of natural resources does not deplete for future generations, all governments, businesses, and individuals must work together.
It is necessary to ensure that all developments are undertaken responsibly to ensure that future generations also benefit from natural resources.