Real estate projects have expanded much faster than credit supply, says National Housing Bank Chairman and Managing Director R V Verma. In an interview with Nivedita Mookerji and Dilasha Seth, he says builders have seen a degree of credit constraint the lending institutions. Edited excerpts:
The National Housing Bank (NHB) recently came out with a residential index for the January-March period. This showed signs of a property price correction in some cities. What are the recent price trends?
There was a price correction in a number of cities during the January-March period. We would now look at the April-June period, as well as a six-month band from January to June. In terms of predictability, we have not arrived at a methodology to forecast a price rise or a price decline. There are various factors that you have to look at—the property price cycle and the interest rate outlook, the credit flow in the sector, the liquidity in the market and the demand and supply situation. Whichever factor is dominant in a particular quarter would also determine the price movement in the property market. The behaviour and response of borrowers and buyers to both existing and the expected market conditions is also important. There are a number of variables that can influence price trends. In addition, locational attributes of the property within a city also throw up different price ranges. We are in the process of gathering the data till June. Unless we construct the index, we cannot really predict the price trend. Over a period of time, the model can be developed into a predictive model.
A lot has been said about a resource crunch in the real estate industry. How real is this?
There was a degree of a credit constraint for builders from lending institutions-both housing finance companies and banks. Projects have expanded much faster than the credit supply, because of good growth in the supply side in real estate. On the other hand, the demand has been affected by high interest rates and high prices. There have been timely regulatory signals from the Reserve Bank of India, which have also cautioned lending institutions on their exposure to commercial real estate. Moreover, the over-supply situation in the market and the growing slackening of demand is also affecting market sentiment.
Are there any particular developers that banks are cautious about?
It is not a developer-specific problem, but a sector-specific issue.
We have heard of cases when banks have denied loans to potential borrowers for specific housing projects. How do you explain that?
The banks conduct their own due diligence both on the borrower and the project. Their concerns may be on account of a variety of factors, which may include the status of land and the process of land acquisition and approvals.
Do you think the 2G telecom scam has hit the real estate sector in any significant way, since some developers are involved in it?
No, I don’t think so.
Wasn’t there a negative sentiment because of the 2G scam?
We have to look at it differently. If there is demand for a product and if the lending agencies are providing loans to borrowers, the whole cycle keeps moving. If the demand flattens due to high prices and interest rates, then it is an issue with the off-take of the product. It has no relation to the 2G scam. It is a demand-driven product and the supply should adjust to the demand.
What is the status of the Real Estate Regulation Bill, which has been in the making for quite some time?
The bill is under the consideration of the Ministry of Housing and Urban Poverty Alleviation.
Is NHB planning a new, consumer-friendly norm to make the real estate sector more transparent?
We are working on valuation of properties in collaboration with the Indian Banking Association (IBA). There is a lack of standardisation in valuation of properties. As you know, regulatory prescriptions quite often relate to the value of the property (risk weights based on loan-to-value ratios). Therefore, it is therefore important that there are standard and uniform practices in the valuation of property across the lending industry. This is part of the market infrastructure in the housing sector that we are seeking to develop. We are working closely with the IBA and the lending industry on this.
As part of the market infrastructure, we also propose to increase the coverage of the RESIDEX, the property price index, from the current 15 cities to 20 cities.
Is there anything being done to prevent fraudulent transactions in real estate?
CERSAI (Central Registry of Securitisation Asset Reconstruction & Security Interest of India) has become operational and the information-sharing portal has been developed. This mechanism would prevent fraudulent transactions in cases of multiple lending against the same property, which is misrepresented by the borrowers. Now, the lenders are placing the data on the e-portal (central registry) relating to the properties on which mortgage/security is being created for the information of all concerned. Already, about 110,000 such property details have been placed on the registry.
Why does Indian real estate not attract significant foreign investment? Is it because of the lack of transparency?
The sector definitely has to develop greater transparency.
