R.V. Verma in Calcutta on Wednesday. Picture by Kishor Roy Chowdhury

Calcutta, July 27: The National Housing Bank (NHB), the regulator of housing finance companies in the country, has urged property developers not to hold on to their built-up stocks to artificially keep prices high and let market forces to determine prices.

“A correction in property prices is long overdue,” said R.V. Verma, NHB chairman and managing director, on the sidelines of a Ficci seminar here today. “If construction agencies allow market forces to determine property prices, it will help them regain the confidence of institutional lenders, who are currently not very confident about the business models of real estate developers.”

“The prices of high- and mid-market properties should come down by 15 to 20 per cent,” Verma said.

Verma also advised home loan providers to judiciously increase interest rates because it could lead to higher delinquencies given the fact that the Reserve Bank had increased its policy rates 11 times since March 2010.

The housing finance market is well regulated, but there are no specific rules in construction. The government, however, has prepared a draft bill to regulate the segment.

“It can happen if developers allow market forces to determine property prices instead of keeping prices at artificially high levels. Developers should look at their costs — whether the land cost or the cost of construction is high — to make the growth in the housing sector sustainable,” Verma said.

He said there had been a clear shift from high-end to affordable housing over the last few years. “This trend must be allowed to continue for sustainable expansion of the construction sector and this will serve the purpose of end-consumers,” Verma added.

The average home loan size of banks is Rs 10 lakh to Rs 12 lakh now, while for housing finance companies it is a tad higher at Rs 15 lakh to Rs 16 lakh.

Verma said the guidelines for Rajiv Awas Yojana — a low-cost housing programme of the government — would be announced soon.

“A Rs 1,200-crore mortgage guarantee fund (for low-cost housing for economically weaker section and low income groups) will also be set up soon,” he added.