Real-estate developers and consultants are not sure if the RBI’s measures of Rs 4,000-crore refinance facility to National Housing Board (NHB) and allowing restructuring of loans to commercial real-estate developers would suffice to revive demand and pull the sector out of its current morass. The general expectation after the repo rate cut is home-loan rates will drop. But experts doubt if this would kick in fresh lending by banks. “We cannot yet say how low interest rates will fall. The next two-three weeks will ascertain that,” said Harsh Roongta, CEO, apnaloan.com. “The key is whether banks will start giving fresh loans to the real-estate sector.” Despite more liquidity available in recent weeks, banks, driven by fear of loans going bad, have preferred to park their money with the RBI instead of lending it. The lowering of the reverse repo rate could act as a disincentive. With floating home-loan rates currently in 10.5-13 per cent range and fixed rates at 12.25 to 14.75 per cent, it remains to be seen whether a 1 percentage point drop will stimulate demand. Navin Raheja, chairman, Raheja Developers, says, “Rates must drop to about 7-8 per cent for demand to pick up significantly in the real-estate sector.” Rajeev Talwar, group executive director, DLF says, “The extent to which lower rates and increased liquidity among housing finance companies (HFCs) will translate into greater lending for housing remains to be seen.”Sanjay Verma, executive MD, South Asia & Australia, Cushman & Wakefield, is more optimistic: “This may bring in some demand to the residential development sector which was reeling due to falling demand, which in turn was on account of high interest rates.” Anuj Puri, chairman and country head, Jones Lang Lasalle Meghraj, too, feels that lower interest rates would boost confidence, especially in the mid-level housing segment. RBI has said the details of the refinance facility to the NHB would be clear next week. Total disbursements by NHB to HFCs amount to more than Rs 100,000 crore. “An injection of Rs 4,000 crore is roughly 3-4 per cent of that,” says Roongta. “The RBI has asked banks and HFCs to put together information on how much money would be required by developers for completing their projects. That information will reveal whether Rs 4,000 crore will suffice,” says Puri. Another concession to the real-estate sector is priority-sector status being given to loans provided by banks to HFCs, provided the housing loans granted by the HFCs do not exceed Rs 20 lakh per dwelling unit per family. Verma says consumers would now benefit from a wider choice of lenders.For commercial real estate, RBI has allowed banks to restructure loans till June 30, 2009. That is, instead of banks declaring them defaulters, commercial real-estate developers will get more time to repay their loans. “Real-estate developers will get short-term relief from the ongoing liquidity crisis. This is especially important for projects that are near completion but face a severe cash crunch in the last phase of development,” says Verma.Anushman Magazine, CMD, CB Richard Ellis South Asia, says, “Making more liquidity available along with rate cuts will help. But a lot more needs to be done to immediately impact the real-estate sector. There has been demand compression and transaction volumes are down. Ultimately, consumer sentiment needs to improve. And this is only possible with an increase in demand and rationalisation of prices.” Builders must complement RBI’s measures by lowering prices. Only a combination of lower interest rates and lower prices will help revive demand in the sector.
