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To revive the fortunes of the moribund real estate sector, HDFC Chairman Deepak Parekh, on Tuesday, suggested measures, including the setting up a stressed real estate fund, giving home buyers higher income tax (IT) deduction for a year, waiving stamp duty and registration fee for a few months, and allowing one-time restructuring of developer loans.
Citing the example of YES Bank, which was rescued through public-private partnership (PPP) funding, Parekh observed the same approach can be taken for the real estate sector, with various stakeholders, including companies in the sector, lenders, sovereign wealth funds and International Finance Corporation (IFC) pooling in resources to bail out stressed projects.
Speaking to developers via video conferencing at a summit organised by the National Real Estate Development Council, Parekh said he will talk to State Bank of India Chairman Rajnish Kumar about the possibility of setting up such a fund.
In this regard, he referred to the Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund-I, announced by the government to provide priority debt financing for the completion of stalled housing projects.
The fund provides resources for the completion of brownfield, RERA-registered residential developments that are in the affordable housing / mid-income categoryto complete construction. It has a target corpus of ₹12,500 crore with a greenshoe option of ₹12,500 crore.
Incentive to buyers
To attract home buyers, Parekh suggested that they should be given incentives in the form of higher IT deduction for a year. Further, the goverment should temporarily waive stamp duty and registration fees during the festival season beginning September 2020. In view of Covid-19 outbreak, he felt that members of joint families may look to buy individual housing units.
At the same time, he asked builders to do their part by not starting new projects till the existing one are complete, offload the piled up inventory to address their liquidity woesand build smaller units.
Builders with land bank could also go in for joint development with reputable corporates such as Tatas, Godrej and L&T, who have easier access to institutional funding.
The RBI should allow banks to offer one-time restructuring of stressed developer loans and temporarily increase the ‘90 days’ overdue’ norm for identification of bad loans to 180 days to help developers overcome the downturn in the real estate sector.
Referring to builders taking short-term loans to finance long-term projects and the experience of lenders with non-performing assets in the real estate sector, Parekh observed that lenders henceforth may have to offer loans for a longer period. This will also include a moratorium on interest and principal payments.
He explained that if a builder developing a 100-acre residential project for 15 years, then taking a three-year loan to develop the same will create stress. Hence, builders need loans of a longer tenure.
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