The real estate sector in the country is facing rising cost of funding as banks are less inclined to lend on account of the liquidity crunch while the inflow of foreign funds too is down.
According to the Confederation of Real Estate Developers' Associations of India (Credai), the average cost of funding rose to 20 per cent after the Reserve Bank of India restrained banks from lending to the sector.
Speaking to Business Standard here on Friday, Lalit Kumar Jain, the newly-elected president of Credai, said the policymakers had taken an "unjust approach towards the sector as a whole” on account of three instances of fraud involving real estate companies.
Because of this, he said the sector “had to go for high-cost borrowings which ultimately added to the load on the end-user.”
Though FDI inflows into the sector were down last year, foreign funds are not an answer to the present tight liquidity conditions because the costs, at 30 per cent, are even higher there, said Jain, who is also the chairman and managing director of Kumar Urban Development Limited (KUL), a Pune-based real estate company.
‘No affordability’
Jain said there is no such thing as affordability in the housing sector today, given the combined impact of the higher costs of funding and inputs, and the long gestation period of projects on account of inordinate delays in securing approvals.
“This is the case when the real estate sector is dealing with only the top 15 per cent of consumer pyramid,” he pointed out. “By denying the much-needed liberal bank funding, we are only widening the supply-demand gap to face high speculation in the real estate market two years down the line.”
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The other major factor contributing to higher housing prices is the various taxes imposed on these projects, accounting for 30-36 per cent of the project cost, according to Jain.
The developers’ body wants the 20 per cent norm for sanction of housing loans to individual consumers to be reduced to 10 per cent, at least for the first-time home buyers.
Separate policy needed
For the affordable housing sector, Jain said, a separate policy is required while also making bank finance accessible to low-income sections.
One way to make the residential units affordable is to bring speed and transparency to the process of granting building approvals by various authorities of the government. This could save up to 25 per cent of project costs, according to Jain.
Credai is preparing a comprehensive check list of required approvals for real estate projects, and this would be submitted to the Union Urban Development minister Kamal Nath this month-end. The industry body wants the government to reduce the time for issuing approvals to three weeks.
On the overall scenario, Jain said the residential segment in the past 18 months has been doing well with the real estate market in cities like Hyderabad and Bangalore having entered a stable phase.
Commercial real estate has started looking up in the last quarter, indicating that the economy is on the rise and the sale and leasing of IT space also has been doing well in the past few months, he said.