The Hindu Business Line : Realty tweaks evoke mixed reaction

The increased risk weightage for commercial real estate lending and increased provisioning for large ticket housing loans do not seem to have come as a surprise to the realty industry at all, but it has certainly drawn mixed reactions from the sector.

"We expected this, given the madness prevailing in the market," said Mr Pranay Vakil, Chairman of real estate consulting company Knight Frank. A 100-per cent increase in real estate prices over six months is certainly not healthy for the industry, he said, referring to what is happening as "reckless buying."

The real estate price rise over the last eight months to one year is not just a demand-supply phenomenon, but one of sentiment, much like in the stock market, he said. The RBIs' announcement, said Mr Vakil, "is a kind of recognition that people may not be borrowing for self use but for speculation."

Mr Keki Mistry

"The increase in risk weight and the enhanced provisions on standard assets reflects the RBI's concern on rising property prices," said Mr Keki Mistry, Managing Director, Housing Development Finance Corporation. "While the RBI has been resorting to raising risk weights as a deterrent to curb banks' lending to the housing and real estate sector, a more prudent policy would be to link the risk weight to the loan-to-value ratio. Thus, only loans with a high loan-to-value ratio should qualify for a higher risk weight rather than a blanket increase."

The increased provisioning on sector-specific standard assets, particularly housing loans above Rs 20 lakh and commercial real estate loans is a sharp measure.

Mr Balaji Rao, Managing Director, TCG Urban Infrastructure Holdings Ltd, said he was not of the view that the measures could contain speculation. According to him, more difficult real estate project financing will slow down projects and create a break in supply, which will only drive up prices further. And since people feel the need to buy, they will stretch themselves to do so. The only way to drive down prices is to make supply easier, he said. "To that extent the announcement today is inward looking."

"Both residential and commercial real estate are driven by genuine demand," said Mr Kapil Wadhawan, Managing Director, Dewan Housing Finance Ltd. "Ninety five per cent of commercial real estate is occupied. It is not good for the sector to have such stringent norms and expect there will be an asset bubble."

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