Developers gear up to tap ECB route for affordable housing
RBI allows developers to raise up to $1 b thru this route
May 23, 2013
Source : The Hindu Business Line

Several developers are planning to tap the External Commercial Borrowings (ECB) route to provide affordable houses.

The Reserve Bank of India has allowed developers and housing finance companies to raise a maximum of $1 billion for affordable housing.

According to R.V. Verma, Chairman and Managing Director, National Housing Bank, though the supply of low cost housing may be low currently, the ECB window will help developers raise resources at cheaper rates, thereby encouraging them to build low-cost houses.

Besides saving on interest cost, the window gives developers an alternative route to raise funds at a time when they are facing a liquidity crunch with little or no access to project finance through domestic sources.

The all-in costs including hedge costs through this route works out to be below 10 per cent against the 13-15 per cent prevailing in the open market and banks, according to V. Madhu, Managing Director of Provident Housing.

P.S. Jayakumar, Managing Director, VBHC said, “Developers have no easy access to project finance domestically and this route provides an alternative which is cheaper as compared with funding through private equity and banks.”

Developers such as Mantri Realty, Provident Housing and Value and Budget Housing Corporation (VBHC) have lined up to tap this window.

However, several listed Mumbai-based realty players including Godrej Properties, Oberoi Realty and Mahindra Lifespaces have decided not to apply as of now since they are not present in the low cost segment. Tata Housing has decided to wait and watch for now.

Mantri Realty is planning to tap the ECB route for its low cost housing project in Gwalior which would comprise 1,200 flats of 60 square metres each priced at Rs 2,000 per square feet.

VBHC is planning to raise resources through ECB for constructing 18,500 new flats in the affordable category on the outskirts of Delhi, Chennai and Bangalore.

Provident which has already constructed 1.5 million square feet of low-cost housing is planning to add another 1.5 to 2 million square feet in this segment using funding through ECBs in Hyderabad and Vizag.

Though only four developers have applied for raising $100 million, the National Housing Bank is expecting a better response from developers after the extension of deadline.

Arun Kumar Misra, Secretary, Ministry of Housing and Urban Poverty Alleviation, said: “Last year, there was very little time for developers to apply. But we expect the response to be better this time as private developers have a longer time window to mobilise resources.”

For ensuring appropriate usage of funds meant for affordable housing and plugging their diversion for buying land by developers, the NHB chief added, “We will keep an MIS (Management Information System) in place with monitoring and reporting mechanism to check the end use of the borrowed funds by developers. The idea is to help buyers get cheaper houses.”

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