Page 44 - Banking Finance August 2021

ARTICLE

FUTURE

CONTRACTS IN

INDIAN REAL

ESTATE MARKET -

A GAME

CHANGER?

Curtains up! The implication of such a price discovery mechanism in an
illiquid asset class as real estate is untested and may lead
Imagine you deciding on buying a house six months down
to regulatory intervention. The process of price discovery
the line and already have arrested the purchase price
may become speculative in nature as investment in real
thereby slaying the ghosts of cost escalations! Seems a fancy
estate stokes the basic societal requirement. As our country
thought, but what if it actually happened?
comprises an aspirational mass, owning a house is looked
at as a necessity than an investment. The buyers in all
The insinuation is at incorporating derivatives like future
likelihood may not have the knowhow and information to
contracts in Real Estate where in a buyer can lock in the
venture into a futures contract. This in turn will offer newer
future purchase price based on his or her view of the real
estate market. The seller by all means will offer a contrarian avenues for banks to book futures contracts in addition to
extending the usual home loans. The real estate market in
view of the market for the transaction to take place. Futures
India is roughly INR 14000 crores, with a CAGR of 13%. It is
would be more apt for the simple reason that unlike forwards
being predicted that by 2040 it will grow to a mammoth
they are standardized and in a nascent market it would be
more suitable. size of INR 65000 crores. This could be the breakthrough to
revive the economy. A lip smacking opportunity for the
banks, albeit with a pinch of salt!
About the author
Most of the future contracts will be booked by banks with
Siddharth Mahanty the help of their treasurers, who presumably will have a
Faculty and Senior Manager sound understanding of the market in question. In
Sir Sorabji Pochkhanawala Bankers' comparison to the regular futures business volume of banks,
Training College, Mumbai, Maharashtra
the proposed real estate futures will only add to the bank's

44 | 2021 | AUGUST | BANKING FINANCE