Realtors seeks PM’s help to beat credit squeeze | india | Hindustan Times
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Realtors seeks PM’s help to beat credit squeeze

india Updated: Nov 06, 2008 22:15 IST
Gaurav Jha

A worried real estate industry, stung by high borrowing costs, rising input prices and negative investor sentiments, has sought the prime minister’s intervention to get current and planned projects going.

“Huge credit squeeze with complete lack of liquidity (is) forcing ongoing projects to a virtual halt,” apex body of the real estate industry Confederation of real estate developers association (CREDAI), said in a letter to Prime Minister Manmohan Singh last week.

The Reserve Bank of India (RBI) has so far infused over Rs 2,00,000 crore into the banking system through various instruments including a 3.50 percentage point cut in the cash reserve ratio (CRR).

The benchmark lending rate-- repo rate-- has also been slashed to 7.5 per cent from 9 per cent.

Chairman of DLF industries, KP Singh had told reporters after a meeting with Singh this week that “more money will come into the system and this is good for the industry”

Analysts, however, said banks have become extra-cautious in lending for housing projects because of deteriorating credit profile of real estate companies.

“The aversion of banks to real estate lending follows from higher perceived risk now being attached to the sector, tight liquidity conditions, and greater risk weight assigned by RBI to lending to real estate companies and sectors,” said Anjan Ghosh, an analyst with credit rating firm ICRA.

In the letter to the Prime Minister, CREDAI, which has 4,000 developers including major players such as DLF Ltd., Unitech Ltd., Parsvnath Developers Ltd and Omaxe, has also sought opening of the external commercial borrowing (ECB) window to enable them to tap cheaper overseas funds.

In September, RBI had increased overseas borrowing limits for infrastructure companies five-fold by up to $500 million, but did not open the window for realty companies.

“ECBs should be allowed for real estate sector. The potential of asset bubble does not arise in the current market conditions. So the RBI policy ( that prevents ECBs for realty projects), is not relevant today,” Sanjay Chandra, MD, Unitech Ltd. said,

The industry is also rooting for easier FDI norms for the sector.

Under existing norms 100 per cent FDI is allowed in the real estate sector subject to minimum capitalisation of $ 10 million for wholly owned subsidiaries and $ 5 million for a joint venture.