The Land Mafia and Real Estate Developers comprising State Level IL-literate and Greedy Politicians working in Oligarchic setup are begging with the Government to bail them out as artificially high land prices and interest costs weigh on them heavily.
The Real Estate Lobby has put the following demands before the Government,
As in earlier days, include stamp duty and other taxes in the flat cost for the purpose of home loans. Taxes contribute 9-14% of the cost for buying an apartment. Increasing the ambit of loans to include taxes will benefit buyers. Reduce the risk weightage to the sector. Commercial real estate loans are assigned 125% weightage and are considered riskier (sensitive sector), hence the higher cost. As NPAs in the sector are much lower than the industry, reduce the risk weightage, thus improving the cost of borrowings for developers. [RBI is unlikely Budge to the Real Estate Lobby]
Availability of funds to the sector and increasing the banking exposure. Real estate as a sector has expanded rapidly in the past decade. Due to paucity of funds from banks, developers have to approach other financial institutions and unorganized moneylenders in the market, resulting in higher cost of capital. More credit from banks will reduce the cost of borrowings.
Provide long-term funds. A real estate project’s life-cycle from land acquisition to completion could range 4-7 years for a normal project and over 10 years for a build-up township project. As per the developers’ body (NAREDCO), construction finance available is for 3-4 years, which force developers to apply for funds for ongoing projects again.
External commercial borrowings (ECB). Increase the limits of ECBs for affordable housing from US$1 bn/year to US$10 bn/year. This will encourage more developers to enter the affordable housing segment.
Improve the speed of sanctions. Construction or other working capital loans take up to 6 months of sanction time, which results in project delays. [We think this is the only Valid Demand]