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Need credible framework to differential good & bad builders: Housing Secy

He suggested that the credible framework could be a rating system and appraisal of past performances

China housing crisis

Photo: Bloomberg

Press Trust of India New Delhi

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Housing and Urban Affairs Secretary Manoj Joshi on Monday pitched for a "credible framework" to differentiate between good and bad real estate developers, enabling the realty sector in accessing credit easily from banks to build projects without being dependent on customers' money.

Addressing a real estate conference organised by CII, the secretary noted that real estate projects, especially housing, are largely funded through customer advances and said this model needs to be changed.

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He suggested that the credible framework could be a rating system and appraisal of past performances.

Joshi pointed out that one of the main reasons for the delay in the construction of projects is cash flow issues. He said there is no bank finance at the level of main contractors and small vendors, which leads to project delays and cost inefficiencies.

 

"Are we helping our economy by not providing finance to such an important segment of our economy?" he asked. "We are hurting far more," he quipped.

"We have had black sheep in the sector, and probably that guides our entire prudential policy of whether finance should go in this sector or not. Everyone agrees that finance is required in this sector, but because of those black sheep everyone is scared of taking action forward," Joshi said.

In general, the secretary said the banking industry makes a policy to treat everyone same be it a good borrower or bad borrower, unlike market borrowing.

"...since we have more of a public sector banking industry, our appraisal systems are not so sharp," he said.

Joshi said financial institutions are unable to differentiate between bad projects and good projects.

"...in the real estate sector, because of few bad projects, a few bad borrowers, you brand the entire sector as bad case for finance and we don't liberalise the finance to this sector," he added.

The secretary said the sector needs to work in this regard and help the RBI as well as the Indian banking system in laying down norms to ensure bad lending doesn't take place too much.

"I think the sector needs to work on that as to how do we enable that differentiation between good projects and bad projects. Rating is one way, past performance is another way but we don't have a framework as of now," Joshi said.

Unless there is a credible framework with the regulators, financing real estate projects would be difficult, he observed.

"...so if you want a really professional market, we need to provide finance to this industry and not the homebuyer providing entire finance. That model needs to change.

"I think the sector needs to enable regulators through a better rating system or a better appraisal system to enable that to happen. Otherwise, all of you will be treated as bad or as good as the worst person in the group. I think we need to work on that," he observed.

Talking about urban planning, Joshi said this is one of the top priorities of the government.

He said the Centre is nudging States to bring reforms in town planning. He highlighted that Rs 6,000 crore was provided in last year's budget and Rs 20,000 crore in this Budget to provide incentives to States for undertaking reforms.

Joshi rued that there is no urban planning in tier II and III cities.

The secretary said the States have also been asked to reduce taxes on urban transport like buses.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: May 29 2023 | 6:09 PM IST

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