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Little progress on affordable housing ECBs

Issues like hedging of foreign exchange risks yet to be resolved

Dilasha Seth  |  New Delhi 

The big-bang Budget announcement of allowing external commercial borrowings (ECBs) for has hardly seen any follow-up action. Government officials and industry stakeholders close to the development indicate the move is unlikely to be implemented anytime soon, as issues like hedging of are yet to be resolved.

The Ministry of Finance, along with the Reserve Bank of India (RBI), would have to finalise the guidelines and issue a notification on ECB norms.

However, a senior official at the Ministry of Housing and Urban Poverty Alleviation, a key entity in the housing ECB issue, said the ECB move wasn’t delayed, adding, “There is time till the next Budget.”

According to National Real Estate Development Council (Naredco), would be defined in terms of price bands, not on the basis of area. “All projects worth Rs 7-15 lakh would be qualified for ECBs,” said Sunil Dahiya, senior vice-president,

According to 35 AD of the IT Act, for a project to fall under affordable housing, “at least 90 per cent of the total allocable rentable area of the project shall comprise units of EWS (economically weaker sections), LIG (low income group) and MIG (middle income group) categories, and at least 30 per cent of the total allocable rental area of the project shall comprise affordable housing units of the EWS category”.

The National Housing Bank (NHB) is likely to be the channel and the nodal agency for After the Budget announcement, its chairman and managing director, R V Verma, had told Business Standard, “has an apex level role, and aggregate lending would provide ‘economies of scale’ to NHB, ensuring no risk is transferred to the housing sector.”

A major hurdle to implementing the move is risks related to foreign exchange, as developers do not have the capacity for hedge funding against these risks. “We had discussed this in the first think-tank session in early April. We decided an intermediary was necessary to protect developers from foreign exchange fluctuations. can be the intermediary here,” said Naredco’s Dahiya.

The industry has not been informed about any meeting after the one in April.

In April, the finance ministry had cleared the path for implementing the ECB move in infrastructure sectors like power, roads and airlines. It is learnt the ministry is concerned over the possibility of the ECB route being misused and, therefore, wants strong safeguards. Among the options considered are escrow accounts for affordable housing projects and real estate players signing undertakings to develop low-cost housing units.

The Ministry of Housing and Urban Poverty Alleviation, and had discussed the modalities for implementing the Budget announcement.

The delay in the notification or the clearance of for affordable housing has led to delay in planning projects as well. “We can’t plan projects unless there are clear guidelines for ECBs,” said a developer in the National Capital Region.

Director-General R R Singh said for affordable housing were being delayed since a lot of parties were involved. Discussions with all of them and convincing everyone required time, he added.

Anshuman Magazine, chairman and managing director of CB Richard Ellis, an international real estate consultancy, said affordable housing was not too big in India, and this was possibly acting as a deterrent to implementing the Budget announcement of allowing ECBs in this segment.

First Published: Sun, July 08 2012. 00:50 IST