CREDAI
CREDAI has reacted sharply over the Finance Minister’s asking chiefs of public sector banks to put pressure on real estate developers to lower property prices and not hold invetory. CREDAI has said in a release that instead of asking realtors to download unsold stock at discounted prices, the Union Finance Minister P Chidambaram should take immediate steps to boost to housing stock supply through special incentives to the affordable segment.
Commenting on reports suggesting that Chidambaram asked banks to pressurize developers to clear inventory and lower the prices to get the economy running, CREDAI National President Lalit Kumar Jain said, “We are happy that at last the Government has realized that real estate kick-starts the economic development.”
He described the reported figure of unsold housing stock of 500,000 across the country as unrealistic.
“We ourselves have asked member developers to start selling even at rock his capital by sitting on unsold stock that too in a very high interest regime. On the one hand, banks are discouraged to lend to real estate developers while on the other cost of fund from non-banking sources is prohibitively high,” Jain said.
CREDAI has also volunteered to work with the Indian Banks Association on the proposed committee on housing sector which was mooted by the Finance Minister.
The current size of the real estate industry is estimated to be about 180 Billion USD with a CAGR of 18-20%. For the past two years, however, liquidity in general and access to bank credits in particular has been restricted due to variety of risks. Therefore, just as any other sector of economy, the real estate sector has also found it difficult to tap bank resources, bank credits.
It estimated that out of the huge investment in the organized real estate industry funding by the commercial banks is negligible. Banks and finance companies are still wary of financing Real Estate sector as RBI always keeps it in the negative list.
“It is ironic that while home loans area top priority, the home developers are not,” Jain regretted.
Referring to concerns over prevailing high prices of houses, he said it is akin to the typical egg-and-chicken scenario. The general sentiments in the market and economy are preventing buyers to move and developers are unable to bring down the prices because of very high cost of construction. Hence the demand-supply mismatch continues with the housing shortage crossing the 26 million mark.
The other key factors that add to the high cost of realty are the ever increasing local municipal taxes, ready-reckoner rates for deciding stamp duty, cess and even VAT.
For instance in Mumbai, the financial and real estate capital, the burden on developers has risen on account of fungible area. The cost of labour has gone up by as high as 60% over the past two years.
“CREDAI, therefore, appeals to Chdamabaram to look at ways to bring down the cost of construction while taking steps to encourage buyers to have houses of their own,” Jain said.
“As things stand, it is unrealistic to expect developers to cut down prices of even of some of the unsold stock as they had already incurred the high cost and it does not make business sense for us to go out of pocket,” he explained.
CREDAI, humbly requests the honourable Finance Minister to focus government attention on bridging the demand-supply gap by lowering the rates of interest and enhancing faith in the economic conditions of the country.
In a related development CREDAI has requested the Indian Bankers Association to involve the developer community apex body in the banks’ advisory committee on housing which the finance minister suggested.
“Being given to understand that the Honourable Finance Minister of India has asked the Indian Bankers Association to form an advisory committee on Housing that would advise the government on the ways and means to check the slowdown in the sector, CREDAI has volunteered to work with IBA,” Mr Jain said.
“Sir, as you are well aware that the Realty Sector is undergoing very hard times. Stocks are piling up, debts and financial defaults are rising, and the sector is shrinking due to adverse market conditions, high cost of inputs, tight monetary policy and large burden of taxes,” CREDAI communiqué to IBA Chairman Mr Alok K Mishra said.
“A Delegation of CREDAI is ready to meet IBA to present a holistic picture about the contemporary Housing situation and its issues in order to strike the necessary balance and ensure optimal efficiency in the developmental process of the country,” said the letter dashed out by CREDAI Chairman Pradeep Jain and Mr lalit Kumar Jain himself.
CREDAI pleased for declaring housing as a priority sector at par with infrastructure and suggested that home loans be given at 7% for the low income groups and economically weaker sections. Similarly, the margin money contribution for availing home loans should be reduced to 15% from the prevailing 20 to 30%.
CREDAI suggested a roll-over provision for loans to real estate. The NPA norms should also be modified to allow this accommodation by the banks, housing finance institutions and financial institutions.
Banks should be encouraged to fund the developers with fresh infusion of funds on a priority basis to enable them complete on-going projects, CREDAI said and called for removal of the disparity in risk weights: Risk weight assigned to Real Estate projects should be reduced at par with other industries for the purpose of credit-disbursal by banks.
Similarly, CREDAI said, banks should facilitate land loans as part of the project cost, particularly when the land is purchased in an auction/bidding from Government/Municipal authorities.
Pointing out that banks and HFIs are enjoying certain concessions on loans up to 20 lakhs under priority sector loans, CREDAI called for upscaling the limit to at least Rs 35 lakhs due to the rising inflation and considering the urgent requirement of credit in the housing sector.
CREDAI also suggested to banks to give priority to affordable housing segment – homes with up to 1,000 sqft carpet – and allow project funding up to 40% of the cost, inclusive of land price.
Calling for amending the Foreign Ownership rule, CREDAI said the government could consider the feasibility of permitting pre-approved foreigners from a certain list of countries to own a house in India, just as Indians can buy houses abroad.
