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Economy Sep 18, 2012

Why realtors' funding woes may end soon

By Firstbiz Staff

In order to ease the cash crunch for the realty sector, Secretary for Financial Services D K Mittal has asked the commercial banks to focus on funding partially completed projects on a priority basis and development of projects in small towns.

Mittal also asked the real estate apex body, Confederation of Real Estate Developer's Associations of India (CREDAI), to conduct a survey of unsold housing stock so that a decision
could be taken on unlocking their value. He also asked CREDAI to come with norms for development in consultation with the NHB and standards for funding the projects and to work on rating the real estate projects for the benefit of bankers as well as buyers.

Mittal's move followed concerns voiced by finance minister P Chidambaram recently to bankers that developers were sitting on five lakh unsold flats which they are neither able to sell at the prevailing high prices nor are they allowing others to buy by lowering the prices.

Mittal on Monday met bankers and the real estate developers body CREDAI in Mumbai and discussed various issues affecting the sector. Apart from SBI, banks such as HDFC, NHB and Bank of Baroda participated in the consultative meet.

Reuters

"We have seen very serious commitment by the government in creating more housing stock. During the meeting, Mittal asked banks to focus on funding under-construction projects
which have been delayed.... a positive sign for developers who are facing liquidity crunch," CREDAI national president Lalit Kumar Jain told reporters after the meeting.

Jain said the secretary asked banks to fund under-construction projects on priority basis as well as projects in tier II and III cities.

"Many projects were stalled due to lack of funds. This will help in creating more stock, especially in small towns," Jain said, adding issues like approvals and clearances were
also discussed at the meeting.

"Bankers have also agreed that factors like delay in project approvals, limitation on availability of land for real estate and even the FSI restrictions should be addressed, as
they become a major hurdle when it comes to funding. If this issue is addressed, it will help create adequate stock," Jain said.

"There has been a general perception that developers are holding on to inventories to push up property prices. But the reality is different. We will appoint a consultant and conduct
a survey as directed by the secretary, to find out the actual status of housing stock," he said.

"At present there is no method available to get the information on the actual status of the stock. We will do it through a credible agency. We will soon finalise the agency to
do the job," Jain said.

He reiterated CREDAI suggestion to reduce the rate of interest on housing loans to 7% to strengthen demand. All other expenses like stamp duty and the various taxes should be added to the overall cost of project and should be funded up to 90% of the total cost.

The real estate project funding should be at 10% instead of the prevailing 15.5% and even the costly funding by NBFC sector should be brought down, CREDAI said.

he real estate apex body, Confederation of Real Estate Developer's Associations of India (CREDAI), to conduct a survey of unsold housing stock so that a decision
could be taken on unlocking their value,

by Firstbiz Staff

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