Cautious optimism for RBI's boost to low-cost housing

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Puja Bhattacharjee | July 10, 2013



The Reserve Bank of India’s (RBI) latest move to give a booster dose to the low-cost housing sector has evoked mixed feelings among developers and real estate experts. While most have welcomed the move, some are sceptical, too.

The RBI recently said that developers with at least three years’ experience in building low-cost, affordable houses can now raise money through external commercial borrowings (ECB), as opposed to the earlier norm of five-year experience for these builders.

The decision is meant to encourage more developers to foray into the affordable housing sector.

Some experts, meanwhile, have cautioned developers on the rupee fluctuation front. “We have to keep in mind the volatility of rupee against the dollar. Any profit a developer makes might be affected if the foreign exchange rates fluctuate,” said Sachin Gulaty, head-valuations (India) strategic consulting, Jones Lang LaSalle.

But PS Rana, former CMD of HUDCO, CMD of Panthera Developers, called the decision “insignificant”, saying that it might lead to increase in red tape. He added that discretion and scope of interpretation comes in with the decision.

Real estate management consultant Saurabh Agarwal sounded cautiously optimistic: “The relaxing of norms has prompted many developers to start thinking on (taking on) affordable housing on a bigger scale. The average borrowing cost in these case will be around 7 percent – vis-a-vis 12 percent to 13 percent, or even higher, in other cases. The area (per housing unit) will be below 800 square feet for this category and developers can pass on the benefit to the end-user.

“My take is that this legislation must be backed by actual movement on the ground. Once we have a couple of such deals, it can open the floodgates for social entrepreneurs.”

Jones Lang LaSalle’s  Gulaty said: “The three-year experience might be a good thing but developers with three years of experience might have relatively poor performance. The idea is to build capacities in the country. ECB will consider the risks before disbursing loans.”

Sunil Mantri, chairman of Mantri Realty Limited was more optimistic: “We welcome the easing of ECB norms for the housing sector. The opening of the ECB was a significant signal to the market. However, volatility in the global financial market must be kept in mind while raising funds through the ECB route.”
According to RBI, low-cost housing involves units priced below Rs 30 lakh and a loan amount restricted to Rs 25 lakh.

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