Realty Sector demands ‘stimulus package’

National Real Estate Development Council (Naredco) and the Confederation of Real Estate Developers’ Associations of India (Credai) has petitioned the Government to ease foreign direct investment and external commercial borrowing norms and formulate a policy for rescheduling of term or construction loans to facilitate the roll-over of existing debt.

The request has also to be seen in the context of the recent announcement by China that it would invest about $586 billion on boosting infrastructure and consumption including low-cost housing.

In a letter to the Prime Minister recently, Credai said that the high credit squeeze was forcing ongoing projects to a virtual halt, amid an “extremely negative sentiment in the market”.

“Capital of both developers and funds have significantly eroded with crashing valuations. Developers and funds are unable to raise loans from external sources to finance completion of ongoing projects due to ECB and other restrictions on real estate development,” Credai said.

Stressing on the need to define ‘affordable housing’, Credai said that the FDI and ECB rules need to be modified to encourage investment in affordable housing. The norms currently allow 100% FDI in construction development projects including housing, commercial premises and resorts subject to conditions minimum capitalization, and area for development. “The limits of 50,000 square metres or 25 acres could be relaxed for this sector,” it said.

It further said that ECBs should be permitted for the real estate particularly for completion of all ongoing projects where there is already equity in form of FDI. Currently, the ECB is prohibited for real estate development.

“The monetary policies of the RBI for real estate projects and home loans by Indian banks, closure of ECBs and rise in interest rates together with stock market crash have lead to a situation where credit has dried up and buyers are hesitant to invest despite a strong demand,” said the Naredco Director-General, Brig. (Retd.) R.R. Singh.

Naredco has said that in cases where the land is purchased from Government agencies, banks should be allowed to finance the land cost in addition to construction costs.

The RBI, since October, has reduced several benchmark rates including mandatory deposit that banks keep with the central bank (cash reserve ratio), the amount which banks have to park in government securities (statutory liquidity ratio) and repo rate to unlock bank funds and trigger a low interest rate regime. However, the spate of negative news from the real estate sector shows no signs of waning. A report released by Cushman & Wakefield yesterday had pointed out that retail rentals fell by up to 20% in the third quarter ended September 2008, as retailers moved cautiously on expansion plans.