The real estate sector needs to access finance from the banking system and not be so heavily dependent on money of homeowners to build houses, Manoj Joshi, Secretary, Ministry of Housing and Urban Affairs, said on Monday.

“The real-estate sector needs to help the regulator and the banking system evolve a credible framework to differentiate between good projects and bad projects so that it can access capital from the banks,” he said at the CII Annual Conclave on Indian Real Estate 2023.

In the absence of a system to segregate good borrowers from bad ones, all players are treated as unreliable by the banks, Joshi said.

In the real-estate sector, contractors and vendors (who work for developers) do not access bank credit. Both work on money that they get as advance from the government clients or developers who get their money from the house owners. This often leads to a crunch in working capital in the entire supply chain.

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“This further leads to delays, higher-cost and inefficiencies, and a project that could get completed in three years takes five, said Joshi. “We are hurting our economy by not providing capital to such an important segment of the real estate sector” he added.

According to the official, the banking system wants its capital to be in safe hands.

“If the borrowing was through a market system, it would differentiate between a good borrower and a bad borrower, but since we largely have a public sector based banking system, our appraisals are not so sharp,” Joshi said.

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