Housing faces $70-bn funding gap over next 5 years
The domestic housing sector is likely to face a funding gap of $70 billion (Rs311,500 crore) over the next five years, according to the Confederation of Real Estate Developers’ Association of India (CREDAI).business Updated: Jul 24, 2011 21:38 IST
The domestic housing sector is likely to face a funding gap of $70 billion (Rs311,500 crore) over the next five years, according to the Confederation of Real Estate Developers’ Association of India (CREDAI).
Such a situation might create hurdles for the industry to grow if the Reserve Bank of India is not “proactive”, said Lalit Kumar Jain, president, CREDAI. “The housing required in the current Five-Year Plan is 24.6 million and it is 37 million in the next Five-Year Plan. We require $3.2 trillion (to meet the target). Funding gap in housing will be around $70 billion in the next five years.”
“Foreign investments do not solve the problem. They are very costly and cannot be affordable. There has to be generation of funds internally and the RBI has to be proactive on this issue," said Jain.
Any foreign direct investment (FDI) into the country would expect a 30% return on investment, which is not possible in real estate projects and hence not advisable, he added.
The RBI allows only real estate companies to tap external commercial borrowings (ECBs) for township projects spread over a minimum 100 acres of land and small players cannot go for ECBs.
According to the RBI, credit flow to the commercial real estate (CRE) sector increased by 19.9 per cent year-on-year in May compared to 1.2% in the year-ago period.
Though there is no cap on banks’ exposure to real estate, the RBI insists that banks should get internal limits approved by their boards.