Housing sector to face $70 bn funding gap: CREDAI

The Confederation of Real Estate Developers' Association of India (CREDAI), an apex body of organised real estate developers in the country, has estimated that the sector will face a funding gap to the tune of $70 billion over the next five years.

CREDAI President Lalit Kumar Jain said such a situation might create hurdles for the industry to grow if the Reserve Bank of India is not "proactive".

"The housing that is required in the current Five-Year Plan is 24.6 million and it is 37 million in the next Five-Year Plan. We require $3.2 trillion [to meet the target]. Funding gap in housing will be around $70 billion in the next five years. The $70 billion is among the current developers only," Jain told PTI.

He was speaking ahead of the third edition of the National Association of Realtors (NAR)-India Convention 2011, a two-day convention and exposition set to begin here today.

"Foreign investments do not solve the problem. They are very costly and cannot be affordable. There has to be generation of funds internally and RBI has to be proactive on this issue," Jain added.

He said any FDI into the country would expect a 30 per cent return on investment, which is not possible in real estate projects and hence not advisable.

The RBI only allows real estate companies to tap external commercial borrowings (ECBs) for township projects spread over a minimum 100 acres of land, Jain said, adding that small players cannot go for ECBs.

Replying to a question on bank funding for the real estate sector, Jain said the perception of policymakers was based on market pricing in Mumbai and Delhi, which does not reflect the ground reality.

According to the RBI, credit flow to the commercial real estate (CRE) sector increased by 19.9 per cent (y-o-y) in May, 2011, as compared to 1.2 per cent during the corresponding period of the previous year, while it increased by 21.9 per cent in April on a Y-o-Y basis.

Though there is no cap on banks' exposure to real estate, the RBI insists that banks should get internal limits approved by their boards.

Referring to banks' apprehensions on lending to real estate projects, the CREDAI president said NPA (non-performing assets) levels are lower in real estate loans.

"If you consider NPA levels of real estate sector with other industry, it is the safest sector to fund as there is 200 per cent security given to banks for funding the project," Jain explained.

He cautioned that if the government was not proactive, there is a threat of creating slum cities around the present ones due to the absence of dignified accommodations.