As the Budget paved the way for external commercial borrowing (ECB) in the low cost affordable housing — at a time when most realty players are facing liquidity crunch, more real estate developers are expected to launch affordable housing projects.
With no clear definition for affordable housing there are many ways to depict any given project as one—despite the selling price, said the industry trackers. “Developers are notorious when it comes to affordable housing. In 2008 after Tata Housing launched affordable homes, every developer re-branded their projects to affordable—even those selling apartments at Rs 50 lakh per unit,” said a top executive with a foreign consultancy.
Industry trackers said some developers whose projects are stalled due to lack of funds, could attempt the trick to convert, re-brand, or reposition their projects as affordable ones, with an intention to get liquidity injection.
Moreover ECB—a financial instrument to invest foreign funds in projects—would be even more attractive as it would come at a lower price or interest rate compared to the high interest rates charged by the banks. Domestic banks are currently charging 16-18% per year to real estate sector. While private equity funds—the only other way available for liquidity in current situation for most developers—are expecting returns of 24% per anum. Although for developers, the ECB route could be a double-edged sword due to the strict repayment regulations.
“This (ECB in affordable housing projects) will help complete projects that were otherwise inundated with financing woes. Affordable housing segment will now be able to avail of loans at a significantly lower interest,” said Kamal Khetan, chairman, Sunteck Realty.
The experts said there is a challenge for real estate developers. “This sector is typified by low margins, and it becomes attractive only if developers are able to produce greater volumes. Better capital availability will help in timely project execution, which will result in higher volumes,” said Anuj Puri, country head, Jones Lang LaSalle India.