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Journalism of Courage
MUMBAI, April 14: Hit hard by the real estate slump, housing finance companies (HFCs) have decided to freeze all housing loans to builders and construction companies till the industry pulls itself out of the present rut.Loans exceeding Rs 1,500 crore provided by HFCs to builders and construction companies, which have almost become non-performing assets, have forced this decision.
“We are not giving any loans to builders as loan recovery is very slow. We are now concentrating on the individual loan segment for budget flats. This segment is growing at a rate of 20-25 per cent,” says Vijay Joshi, chief executive officer (CEO) of General Insurance Corporation, Housing Finance.
Builders and speculators have been worst affected by the unprecedented recession in Mumbai’s real estate industry. Their real assets have depreciated by more than 25-30 per cent, and they are unable to pay back huge loans taken earlier to fund land and flat acquisition.
Y P Gupta, CEO, Life Insurance Corporation, says: “Though wehave post-dated cheques, payments by builders are bouncing. We will have no option but to move court under Section 138 of the Negotiable Instruments Act for recovery of loans.”
Incidentally, most of the HFCs, including market leader Housing Development Finance Corporation (HDFC), have recorded a healthy growth in small and individual loans devoid of any investment gambling.
“In the previous financial year (1996-97), we were at least receiving interest payments with a one per cent penalty each month on the delayed loans, but now even that isn’t coming, forget the principal amount,” Gupta points out.
Besides builders and big construction companies, speculators too have lost out due to sagging prices, lack of demand and falling interest rates. With no sign of revival, speculators have been summarily ejected from the real estate business by market forces.
Some speculators, who bought flats at a very high rate of interest from HFCs during the 1992-94 housing boom, are losing out on two counts:depreciation of assets and payment of high interest rates, even though the latter have fallen steadily since 1995.
“We expect interest rates on housing loans to fall further in the current financial year as the prime lending rates of commercial banks are expected to decrease,” Joshi adds. As the HFCs do not want builders’ bad loans to figure in their own balance sheets, defaulters have been given more time to pay back with penal interest. However, this deadline cannot be extended indefinitely.
“As of now, we are persuading them to pay back. Due to a prolonged legal process, we are avoiding the courts. We hope that they will repay us when the industry picks up in the future,” says an HDFC official.
