Developers not happy sitting on inventory: CREDAI
Instead of asking realtors to download unsold stock atdiscounted prices, the Union Finance Minister P Chidambaram should take immediate steps to boost to housing stock supply through special incentives tothe affordable segment, developers apex body CREDAI said.
Commenting on reports suggesting that Mr Chidambaram asked commercial banks to pressurize developers to clear inventory and lower the prices to get the economy running, CREDAI national President Mr Lalit Kumar Jain said: “We are happy that at lastthe Government has realized that real estate kick-starts the economic development.”
He described the reported figure of unsold housing stock of 500,000 across thecountry as unrealistic.
“We ourselves have asked member developers to start selling even at rock bottomprices as long as three month ago since nobody would like to block his capitalby sitting on unsold stock that too in a very high interest regime. On the onehand, banks are discouraged to lend to real estate developers while on theother cost of fund from non-banking sources is prohibitively high,” Mr Jainsaid.
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 ingeneral and access to bank credits in particular has been restricted due tovariety of risks. Therefore, just as any other sector of economy, the realestate 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 arestill wary of financing Real Estate sector as RBI always keeps it in thenegative list.
“It is ironic that while home loans area top priority, the home developers are not,”Mr 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 andeconomy are preventing buyers to move and developers are unable to bring downthe prices because of very high cost of construction. Hence the demand-supplymismatch 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 andeven VAT.
Forinstance in Mumbai, the financial and real estate capital, the burden on developers has risen on account of fungible area. The cost of labour has goneup by as high as 60% over the past two years.
“CREDAI,therefore, appeals to Mr Chidamabaram to look at ways to bring down the cost ofconstruction while taking steps to encourage buyers to have houses of theirown,” Mr 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 itdoes 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 andenhancing faith in the economic conditions of the country.
In a related development CREDAI has requested the Indian Bankers Association toinvolve the developer community apex body in the banks’ advisory committee onhousing which the finance minister suggested.
“Being given to understand that the Honourable Finance Minister of India has asked theIndian Bankers Association to form an advisory committee on Housing that wouldadvise the government on the ways and means to check the slowdown in thesector, CREDAI has volunteered to work with IBA,” Mr Jain said.
“Sir,as you are well aware that the Realty Sector is undergoing very hardtimes. Stocks are piling up, debts andfinancial defaults are rising, and the sector is shrinking due to adversemarket conditions, high cost of inputs, tight monetary policy and large burdenof 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 thenecessary balance and ensure optimal efficiency in the developmental process ofthe country,” said the letter dashed out by CREDAI Chairman Pradeep Jain and Mrlalit 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 andeconomically weaker sections. Similarly, the margin money contribution foravailing 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 apriority basis to enable them complete on-going projects, CREDAI said andcalled for removal of the disparity in risk weights: Risk weight assigned toReal 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 fromGovernment/Municipal authorities.
Pointing out that banks and HFIs are enjoying certain concessions on loans up to 20 lakhsunder priority sector loans, CREDAI called for upscaling the limit to at leastRs 35 lakhs due to the rising inflation and considering the urgent requirementof 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 couldconsider the feasibility of permitting pre-approved foreigners from a certainlist of countries to own a house in India, just as Indians can buy houses abroad.