The Hindu Business Line : Relief to both developers and home buyers

BL Research Bureau The Reserve Bank of India’s growth stimulus package has a couple of significant measures that may help put the ailing real estate sector back on the growth track.

The measures are aimed at providing relief to both the developers and home buyers.

According to the present guidelines of the RBI, restructuring of standard loans offered to commercial real estate would reduce such exposure to a ‘sub-standard asset’. In other words, any default in loans of otherwise viable real estate companies were restructured, but no longer classified as standard accounts.

RBI’s move now, allows such restructured loans to continue as a standard asset. This measure is available for all commercial real estate exposures for banks, which are restructured up to June 30, 2009. Given the present liquidity crunch, the relief offered would help real estate companies direct precious funds into completion of projects. Further, their credit worthiness would not be affected as their borrowing would continue to be classified as standard.

The RBI has also decided to classify loans granted by banks to housing finance companies for further lending to home buyers as priority sector lending. This is applicable provided the loan taken by the home buyer is less than Rs 20 lakh. Earlier, only loans of less than Rs 20 lakh made by banks, directly to home loan borrowers, were granted priority status. This measure seeks to boost lending in the housing segment.

This combined with the property price cuts announced by some realty players and the impending home loan rate cuts expected from banks and housing finance companies could gradually increase demand for budget homes. This package is, however, available only for loans granted by banks up to March 31, 2010.

While the measures are clearly aimed at reviving liquidity and improving demand in the realty sector, the restricted time period for the concessions is suggestive of the Central Bank’s guarded approach to the sector.

That RBI has not met the other demands (requested by various real estate associations), such as relaxing norms for foreign direct investments into the sector and allowing external commercial borrowings, is also indicative of RBI’s still cautious stance on realty.

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