Industry welcomes RBI’s move allowing ECBs in real estate

The decision of Reserve Bank of India (RBI) allowing developers to raise funds through external commercial borrowings (ECBs) via approval route for low cost housing has been welcomed by the real estate industry. The idea was proposed this year, in the Union Budget for the year 2012-13 and was one of the most awaited policies of the RBI. It is expected that the move would give boost to the industry, which is already witnessing severe liquidity crisis.

“It was a much awaited guideline and we all have been looking forward to it. It would help in creating a stock for low-cost housing in the country,” says Manoj Goyal, director, Raheja Developers.

The provisions of the RBI’s notification say that ECBs can be availed by developers for affordable housing projects and Housing Finance Companies (HFCs)/ National Housing Bank (NHB) financing prospective owners of low cost housing units. The developer must have a proven track record, five years experience in residential projects and must have fulfilled all his previous financial commitments. Further, the project must be free from any litigation.

Further RBI has defined affordable housing project as a project, which has 60 per cent of permissible floor-space-index (FSI) for units having maximum carpet area of up to 60 square meters. In addition there is a limit of USD 1 billion that can be borrowed. “Going forward, the limit of USD 1 billion will need to be looked at if we are to overcome the housing shortage of 26 million units,” says Brotin Banerjee, MD and CEO Tata Housing and Development.

However, some industry experts believe that there are risks too. For instance, there is always a risk of currency fluctuation involved while borrowing from an international market. Expressing this concern Sanjay Dutt, executive managing director, South Asia, Cushman and Wakefield says, “Domestic finance is available at an interest rate of 13 per cent while rates is much lower at 4-8 per cent abroad. However borrowing funds internationally involves risk of currency fluctuation and hedging cost. Moreover not every lender in the international market may want to give loans for real estate in India and funds may be available to credible few developers only. ”

However, it is certainly a positive step by the government as there are limited funds available in the domestic market. “It is always better to have a global capital pool than being restricted to sources at home,” adds Dutt. The policy will provide an impetus to the industry and assist developers in accessing funds.

Sruthi Kailas, MagicBricks.com Bureau

Why things are looking up for real estate sector

Over the past one month, the BSE Realty index rose over 3 per cent while the BSE Sensex has gained 2.5 per cent. The outperformance of the Realty index could mean that things are consolidating and changing for the better.

Here are some latest developments in the sector:

• No credit bubble: According to the RBI data, the exposure of the banking sector to retail home loans reached an 8‐year low at 9 per cent. This lessens potential concerns of a credit‐led bubble in real estate providing headroom for future growth, says Edelweiss, a Mumbai-based firm. This means banks should lend more to borrowers of new homes.

• Prepayment charges removed: RBI has banned pre-payment penalty charges on floating rate home loans recently. This means borrowers can change their lending bank without having to pay any prepayment penalty. Prepayment and other charges deterred borrowers from switching banks. Analysts expect banks to offer competitive lending rates to home loan borrowers to acquire retail home loan assets.

• Mumbai shows promise: Property registrations for March and April 2012 in Mumbai were 5,830 and 5,150 respectively. This is well above 4,100 reported in January and 4300 in February 2012, according to Edelweiss. The underlying demand for homes in cities like Mumbai Metropolitan Region or MMR is growing. While the year-on-year growth in sales for quarter to March 2012 was flat at 9.13 million square feet (msf), it rose 20.3 per cent over the December 2012 quarter. The focus was on the Thane region which saw over 5,000 homes launched for sale in the quarter to March 2012 out of the total 7,000 in the MMR region.

• So do other markets: The National Capital Region reported a growth of 36.1 per cent to 30.99 msf in the March 2012 quarter. This was largely led by sales in Noida following the resolution of the land row and a pick-up in the project approval process. Over one year to March 2012, residential property prices rose 34 per cent in Pune, 29 per cent in Chennai and 17.2 per cent in Bangalore. The NCR region witnessed property prices jump by 14.8 per cent.

• Companies cut debt: Aggregate debt of listed real estate real estate companies stands at Rs 48,900 crore, rising 2 per cent over December 2011 quarter and 14 per cent over March 2011. DLF accounted for Rs 22,730 crore as of March 2012. Analysts believe that companies are looking to cut their debt. DLF is selling non-core assets actively while Godrej Properties have issued additional equity. Sobha Developers has also cut debt during the year.

Source: http://profit.ndtv.com/News/Article/why-things-are-looking-up-for-real-estate-sector-306283