The Hindu Business Line : RBI package welcome, but…

The real estate sector has welcomed the Reserve Bank of India’s support measures for the real estate sector but some of the leading developers feel more is needed to rejuvenate the market. The RBI has brought down the repo and reverse repo rates by a 100 basis points; granted priority sector status for loans by banks to housing finance companies for on-lending a maximum of Rs 20 lakh a dwelling unit to individuals — this special dispensation will be available up to March 31, 2010; and extended concessional treatment to commercial real estate exposures that are restructured up to June 30, 2009.

The RBI’s signal to banks to cut lending rates, has offered some respite to the rate sensitive real estate sector. The developers are now pinning hopes on the Government for an additional booster.

‘Good beginning’

Mr Niranjan Hiranandani, Chairman and Managing Director, Hiranandani Constructions, said that the move was a good beginning signalling that the Government and the RBI have recognised the need for support and the positive impact it would have on employment generation and construction related industries. The support to housing and construction will have an immediate beneficial impact on more than a million jobs in the construction industry.

However, Mr Hiranandani was disappointed with the rate cuts. “I feel interest rates need to drop more, at least by about 200 basis points. We need a sharp cut for the growth signal.” Similarly, the Rs 4,000 crore refinance facility to the National Housing Bank would be “excellent” if the refinance rates to housing finance institutions are lowered to 4-5 per cent.

Mr Hiranandani regretted that the ceiling of Rs 20 lakh on home loans for treatment as priority sector lending was low. Ideally, it should have been at least Rs 30 lakh as was done earlier. Affordable homes would not come within reach for buyers in large metros such as Mumbai, Delhi and Kolkata at this level.

‘No immediate impact’

Mr Rohtas Goel, Chairman and Managing Director, Omaxe Ltd said, “Some sales will pick-up, but I do not see much impact immediately. Real estate sector had seen a rally when the interest rates were at 7-7.5 per cent. Until the lending rates come down to single digit, I do not see any drastic change in demand for housing, and for that more repo rate cuts are needed.”.

Mr Raj Menda, Managing Director, RMZ Corp, said the measures to support the residential segment would help boost the buyers’ confidence and make a commitment to invest. Any encouragement to demand growth would assist a wide segment of society, including the developers, home buyers and the millions of workers dependent on the construction industry for their livelihood. The announcement to facilitate restructuring of loans for commercial real estate is a positive indication.

Pass on benefits

“It is good that the RBI has realised the problems in this sector but still the benefits need to be passed to consumers for demand to revive. We are not sure to what extent that benefit will actually be passed on…The full benefits of the last slew of measures (reduction in CRR) have not been passed to consumers yet,” DLF CFO, Mr Ramesh Sanka said.

He said that while the interest rates have started to cool-off, it still needs to come down by a few more percentage points. “The demand will revive at seven per cent interest rate.”

According to Mr Pradeep Jain, Chairman, Parsvnath Developers, while the RBI’s decisions would offer some comfort on the liquidity front, the real estate sector had expected “much more”. “The decision to extend concession to revamp realty loans till June 2009 for the commercial real estate, means that developers can now put money into their own projects.”.

Needed, more fiscal incentives

The Confederation of Real Estate Developers’ Association of India (CREDAI), which had recently petitioned the Government for a ‘stimulus package’, said that although a 100 bps reduction in repo and reverse repo would not have a significant impact, overall the direction of the RBI was extremely positive.

“The message is strong, but the need for ‘fiscal incentives’, including suggested measures such as permitting deduction of principal repayment amount for a short period and incentivising people to buy homes for rental purpose, still remains,” CREDAI Chairman, Mr Kumar Gera said.

Mr Navin M. Raheja, Managing Director of Delhi-based Raheja Developers, said the RBI’s announcement would kick-start demand for housing loans. “The industry, which was seeing nearly 70 per cent drop in demand, has got a fresh lease of life but companies now must look at reducing their debt exposure as fast as possible,” he said.

MOUMITA BAKSHI CHATTERJEE

R. BALAJI

Feedback to blproperty@thehindu.co.in