Realtors may get access to fresh loans

The country’s cash-strapped real estate companies may get a fresh lease of life and expect to see a boost in the sale of affordable houses following a slew of measures announced by the Reserve Bank of India (RBI). The companies expect the central bank’s move to help lower lending rates.

RBI’s move to grant concessional treatment to commercial real estate exposure, which is restructured up to June 2009, is expected to help ease some financial pressure on realtors and may also grant access to fresh loans.

After RBI’s measures, banks can now treat developers’ loans as standard assets, requiring lesser provisioning on these loans. “It is an exceptional regulatory treatment for second restructuring done by banks. It is the best development that can happen for the cash-strapped real estate industry,” said Rohtas Goel, the managing director of Omaxe, a Delhi-based property developer.

Earlier this year, RBI said the moment a loan by a property developer is restructured, banks must classify it as an NPA (non-performing asset), making it difficult for developers to seek loans elsewhere.

The central bank’s move to grant priority sector lending status to loans given by banks to housing finance companies for on-lending to individuals for purchase or construction of homes is expected to help real estate companies sell more low-cost housing projects. However, loans of Rs 20 lakh per dwelling unit per family will be eligible for priority sector definition.

“RBI has given its support. Now, we need to bring out the right product at right prices in the cities,’’ said R Nagaraju, head of planning and strategy, Unitech. Real estate companies still feel the slew of measures announced by RBI was insufficient and won’t help the long-term growth prospects of the sector.

RBI today announced cuts in repo rate, the rate at which it lends, and reverse repo rate, the rate at which it borrows from banks, by 100 points each, signalling commercial banks to cut their lending rates. “These rate cuts look okay at this moment. But more needs to be done. At least, RBI should cut rates by 2-3 per cent,” said Ravi Ramu, the director of Bangalore-based Puravankara Projects.

Realtors fear that the 100-basis point cut won’t spur banks to lower lending rates and help them make projects viable.

“Banks’ effective rate of interest is still high. Due to the credit crunch, they are still negotiating with borrowers at higher rates. RBI should direct them to lend at PLR or below PLR rates. Banks are still not ready to lend to developers,” said Pradeep Jain, chairman, Parsvnath Developers.

(With inputs from Joe C Mathew and Anil Urs)