Sending positive signs from easing the cash crunch for therealty sector, Secretary for Financial Services D K Mittal has asked commercialbanks to focus on funding partially completed projects on a priority basis anddevelopment of projects in small towns.
Presiding over a joint meeting of Indian Bankers Association(IBA) and developers apex body Confederation of Real Estate Developers’Associations of India (CREDAI) at SBI in Mumbai, Mittal asked the realtyindustry to conduct a survey of unsold housing stock in cities in batches sothat a decision would be taken on unlocking their value.
He also asked CREDAI to come with norms for development inconsultation with the NHB and standards for funding the projects.
He told CREDAI to work on rating the real estate projectsfor the benefit of bankers as well as buyers.
The meeting was called to understand the issues of housingsector and the problems being faced by developers in terms of funding theprojects. Apart from SBI, many leading bankers like HDFC, NHB, Bank of Barodaattended the meeting.
Describing the outcome of the meeting as “positive”, CREDAIChairman Pradeep Jain said: “We arehappy that a good beginning has been made and we hope this will send positivesignals to the real estate market as such. As we move on, we hope to solve thevarious issues one after the other.”
Briefing media on the meeting, CREDAI National PresidentLalit Kumar Jain said, “We highlighted the problems related to supply aide aswell as demand side. All bankers more or less agreed that besides banking, theother factors like project approval delays, limitation on land availability forreal estate and even the FSI restrictions should be addressed for thedevelopment housing sector.”
Bankers also felt that the knotty issue of speeding up theapproval process should be addressed across the country by sensitizing all theStates since real estate is typically a local issue and the rules differ fromstate to state and even city to city, Mr Jain said. This will help createadequate housing stock in the country.
On the issue of restructuring the realty debt, it was feltthat it has to be addressed by the regulator RBI.
Bankers on their part also insisted on the one-projectone-bank norm and opening escrow accounts. In metro cities, the developersshould have one lead banker for funding. They also suggested incentivising therated projects through lower rate of interest.
Mr Lalit Kumar Jain said at the meeting that credit limitfor realty projects should be raised to 25% of the total credit from thecurrent 2.8%. In other countries, the norm is as high as 30%.
Referring to the reduction of CRR by the RBI, Jain said“This is not enough.” He said there could be two options to contain inflation:Either to cut monetary supply or increase the supply of products. ”The secondoption is the right one since it will generate employment and contribute togrowth of GDP,” he said.
He said the rollover facility for commercial real estate(CRE) should be on par with the industry since it is the safest sector to lend.
He reiterated CREDAI suggestion to reduce the rate ofinterest on housing loans to 7% to strengthen demand. All other expenses likestamp duty and the various taxes should be added to the overall cost of projectand should be funded up to 90% of the total cost.
The real estate project funding should be at 10% instead ofthe prevailing 15.5% and even the costly funding by NBFC sector should bebrought down, CREDAI said. CREDAI called for easing the RBI risk weightage of1.25 given to real estate sector.
