In a move that could help the ailing housing sector, the Securities and Exchange Board of India (Sebi) allowed debt funds to invest an additional 10 per cent (after reaching the cap of 30 per cent in financial services) in the housing finance companies.
According to sources, the move was prompted by the finance ministry ’s keenness to revive the housing sector. “There has been a lot of discussion between the finance ministry and market regulator to provide funds for the real estate sector, es pecially the housing sector, ” said a source close to the development. Earlier, HFCs were clubbed with the financial services sector.
Said R V Verma, chairman and managing director, National Housing Bank, “ The move will improve liquidity, temper interest rates and integrate the housing finance sector better with capital markets. ”
In order to cap the risk, Sebi has also limited the investment to only AA papers and above. This will qualify companies such as, HDFC, LIC Housing Finance, Religare, Dewan Housing and some others.
Mutual fund houses manage around Rs 7 lakh crore. This guideline will help increase inflows to the sector by an additional Rs 30,000 - 40,000 crore – equivalent to a 50 basis point cut in the cash reserve ratio, said banking experts.
Industry experts also said that with the improvement HFCs borrow at a base rate plus rate now – around 11 per cent. The cost of funds, after this move, will go down by 150-200 basis points which could lead to more benefits for the end customer as well the builders.
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Providing additional funds to HFCs would be an indirect way of helping the real estate sector, as they possess the necessary know-how to vet properties and developers – a skill set that mutual fund houses don’t have.
At present, equity funds can invest up to 10 per cent in a particular sector whereas debt funds can invest up to 30 per cent in a particular sector.
According to senior officials with the market regulator, the guidelines to infuse fresh funds into the real estate sector come at a time when the finance minister P Chidambaram has stressed on reviving the sector.
The finance ministry has reportedly identified 76 projects tha t were lying incomplete because of reasons beyond the developers’ control.
The ministry plans to ensure that further fund flows are ensured to these developers through banks. In return, these developers would cut the price of projects to benefit buyers.