Realty firms seek priority sector status for low cost housing
Demand comes a day before RBI's policy review
Dec 20, 2013
Source : Business Standard

 

DELHI: After exporters, real estate companies are demanding a priority sector tag for loans to the low-cost housing sector.

“RBI (Reserve bank of India) should expand its scope of ‘priority lending’ to cover lending to developers involved in low-cost and affordable housing, as cheap funding is extremely critical for them to develop low-cost housing projects,” says a report by the Confederation of Real Estate Developers’ Associations of India and Cushman & Wakefield.The report, which comes ahead of RBI’s mid-quarter monetary policy review scheduled for Wednesday, doesn’t specify what is meant by low-cost housing. Budget 2012-13 had provided interest subvention of one per cent on housing loans of up to Rs 15 lakh, provided the cost of the house didn’t exceed Rs 25 lakh. Housing loans of up to Rs 15 lakh to individuals already come under priority sector. Real estate companies want this to be extended to loans availed by developers.

These companies also want RBI to declassify the real estate sector as high-risk. This, the report said, would be possible if the sector was given infrastructure/core sector/industry status. “Housing should be recognised on a par with the infrastructure sector and should be given cheaper project finance. Also, the roll-over facilities should be on a par with those of other industries,” the report said. Real estate companies have said currently, the sector has a high risk weight of 1.25. Lowering of risk weights will result in lower interest rates on loans and increased availability of banking and financial institutional funds to developers, as well as individuals. The companies also want RBI to promote the secondary mortgage market through mortgage-backed securities and collateralised mortgage obligations, with safeguards to avoid a sub-prime crisis.

They said the persistently high inflation had hit individual buyers in many ways. Amid lower disposable incomes and savings, they were faced with increasing housing prices and the high interest rates on mortgages.

The report said the increasing population and urbanisation, coupled with the housing shortage of 62.45 million units, was leading to huge stress on the economy. Currently, an estimated 65.5 million people reside in slums. While many countries had a correlation of housing to gross domestic product that exceeded 0.9, in India the correlation was estimated at 0.78, the report said, adding it was estimated the sector had forward and backward linkages to about 300 ancillary industries.

 

 

 

 

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