The Securities and Exchange Board of India's (SEBI's) recent move to allow debt funds to invest an additional 10% in housing finance companies, aimed at indirectly helping house buyers, is unlikely to yield expected results. Real estate companies with substantial investor presence in projects have ruled out slashing prices.
The market regulator last week allowed debt funds to invest an additional 10% in housing finance companies, increasing the liquidity of the real estate sector by around Rs. 30,000 to Rs. 40,000 crore. The additional liquidity infused would be utilised to lend to cash-strapped companies in the sector. The government expects cash flows into the sector to ease prices of real estate projects.
However, industry experts say the fresh liquidity would not be passed on to end-users. "There is no doubt that real estate firms are in direct need of liquidity but the fact is that any liquidity infused in the sector will only delay the price correction," said Pankaj Kapoor, managing director, Liases Foras. "Developers will not slash prices especially in the residential sector if liquidity is available easily."
Developers in Mumbai and the National Capital Region have been holding on to high prices despite falling sales, say analysts.
The market regulator's move is expected to also lower the borrowing rates for real estate developers.