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Banks hesitant to lend for affordable housing despite infrastructure status
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SME Times News Bureau | 16 Apr, 2018
The affordable housing segment, which is the new rage in the real estate
sector after it got infrastructure status last year, still suffers from
lack of funds from banks. Market participants feel they still have to
wait a few more months before banks embrace such projects.
Infrastructure
status for the segment was announced by Finance Minister Arun Jaitley
in his Budget speech for 2017-18 on February 1, 2017, which allowed
builders to borrow from banks at cheaper rates compared to the
conventional lenders such as private equities.
"That
(infrastructure status) means they (developers) should have been able to
access a lot of funds at cheaper rates... but that's not happening. And
that's not happening anywhere," said Jayashree Kurup, Head of Content
and Advisory, at the property consultant website magicbricks.com .
She added: "It has not translated into anything on the ground, except may be a boost in sentiment."
Most
market participants blame it on the credibility crisis brought about in
the past few years by the slump and lack of sales and delivery of
apartments to end-users.
"Construction finance has not been doing
well -- essentially because of the fact that the sales have not been
good," Shrikant Srivastava, Chief Risk Officer, India Mortgage Guarantee
Corporation, told IANS.
Srivastava, who has also served as the
Chief Risk Officer at PNB Housing Finance, further said: "All lenders
have burnt their fingers in doing construction finance because projects
did not get completed, sales did not happen, and therefore the loans
they had taken, they could not pay back."
In the affordable
housing space, bankers want to do projects, but as lenders have suffered
losses in the prime segment, bankers were shying away from giving
construction finance for the segment, he added.
Ankur Dhawan,
Chief Investment Officer, PropTiger.com, said: "Bank funding is a
problem for the overall real estate sector and is not limited only to
affordable housing. The sector has seen too many NPAs (non-performing
assets) which makes banks cautious in funding this sector."
Aditya
Kedia, MD of Mumbai-based Transcon Developers, attributed the lack of
interest of banks in the sector to the inexperience of the banks in
working with realtors.
"Even for the banking institutions, it is a
new field; so the primary concern these people (banks) have is that
since these are smaller-sized apartments, people buying them probably
are from the lower income bracket," he said.
Market players, however, feel this lack of trust between the banks and developers would wane in a few months.
Kedia
was of the opinion that "it is a learning process for both, the
developers as well as the banking sector, and I think it will take six
to eight months for it to be understood well".
J.C. Sharma, Vice
Chairman and MD of the Bangalore-based Sobha Ltd, however, contended:
"If you (developers) have a good track record in operations, there are
no dearth of lenders... even from the banks."
In view of the
recent frauds, mismanagement and rising NPAs, "lending has to happen
with far more scrutiny and better processes than what it used to be --
and we should welcome it from a systemic benefit point of view," he
opined.
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