Real estate developers pitch for easier lending norms in meeting with RBI

Realtor lobby CREDAI also reiterates its demand to allow banks to fund land purchase

Mumbai, Wed, Jun 29 2016: In a closed door meeting with Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday, realtor lobby Confederation of Real Estate Developers’ Associations of India (CREDAI) urged the central bank to ease lending norms for real estate projects, while reiterating its demand to allow banks to fund land purchase, according to two people aware of the development.

The hour-long meeting was attended by a few members of CREDAI, including chairman Irfan Razack and president-elect Jaxay Shah.

CREDAI declined to comment on the meeting, saying it was a private and confidential meeting with the governor.

Some of the key recommendations made by CREDAI to the governor include allowing an increase in bank exposure to the real estate sector, reducing risk weightage as well as allowing external commercial borrowing (ECB), according to the first person mentioned above.

CREDAI also pointed the need for funds at lower interest rates in order to build 20 million urban homes as part of the government’s ambitious “Housing for All” initiative by 2020, said the person.

The group also raised its long-standing demand to allow banks to fund land transactions. Currently, most of the land purchase are funded by non-banking financial companies and private equity firms at high interest rates, according to the second person quoted above.

In a shareholders’ letter on 26 June, Deepak Parekh, chairman of the India’s largest mortgage lender HDFC, said banks and housing finance companies should be allowed to fund land transactions, a move he believed can help lower the cost of land.

Parekh said that “merely reducing interest rates is not sufficient” and that one of the primary factors to improve housing affordability is to bring down the cost of land.

Besides, CREDAI urged the RBI to allow loan restructuring as well as increase priority sector lending to the real estate sector.

India’s real estate market has witnessed one of the longest slowdown that has lasted for more than two years. Slow home sales, rising inventory and long delays in completing projects for lack of funds have pulled down the country’s property market.

Courtesy: Live Mint