Mr.P.Chidambaram, the new finance minister, had asked chiefs of
government owned banks to put pressure on real estate developers / promoters /
builders to lower property prices in order to get the economy moving.
Lower Flats Prices..!
In a meeting held recently with PSU bank chiefs, the finance minister
saidl bankers to impress upon builders the need complete projects according to
schedule & lower the prices of apartments (flats) which are ready for
possession and are not being sold.
“Builders are sitting on huge inventories (unsold flats) which they are
neither able to sell at the prevailing prices nor are they allowing others to
buy by lowering the prices,” a major banker present at the meeting quoted Me.
P. Chidambaram as saying.
5 Lakh Flats Lying vacant..!
Mr. P. Chidambaram pointed out to the PSU bank bosses that there are
close to five (5) lakh flats lying vacant.
“A huge quantum of capital is locked. Why are PSU banks not putting
pressure on them (builders / developers / promoters ) to lower prices since you
have funded both the builder & the retail home loan borrower?” he asked
bankers.
According to Reserve Bank Of India (RBI) data, PSU Banks have lent close to about Rs. 1.2
lakh crore to builders / developers / promoters while their housing loan
portfolio came to Rs. 2.5 lakh crore in the last week of March 2012 .
Premium to Affordable..!
Mr. S. Raman, CMD, Canara Bank
told, “Given the slowdown in the economy, builders or / developers / promoters should take a relook
at the market condition & should effect some reduction in prices across the
board from premium to affordable class. Builders or promoters should not expect only banks to
lower interest rates on housing loans to revive the economy, they too should
contribute by lowering home prices which, by itself, would act as an additional
stimulus to the economy”
“You must instigate borrowers to demand possession immediately or as
per the schedule. You must also find out what is enabling them to hold on to
these vacant flats,” said a PSU senior banker quoting the finance minister.
Real Estate Regulator..!
While no one opposed the Mr. P. Chidambaram’s suggestions, some bankers
stressed the need to put in place a real estate regulator to tackle malpractice
in the real estate sector.
Builders / promoters, however, appear reluctant to lower prices on
account of what they described as rising input costs.
Mr. T Chitty Babu, Chairman & CEO of Akshaya Homes, a Chennai based Property builder, and national secretary of CREDAI, a
body that represents real estate developers across pan India said, “I do not
think there’s scope for a price cut given the kind of input & finance cost escalation we have already witnessed,
unless we recover these costs along with the requisite margin”
Single
Window Clearance..!
Mr. T Chitty Babu also said, ''Price rationalisation can be
achieved only by means of enhancing availability of funds for projects and
single-window clearance. Cost reduction of 10 to 12% can be easily achieved if
the government decides to introduce single window clearance"
Banks may have
little leverage over builders / promoters whose loan accounts are regular.
However, those builders seeking to restructure loans would be more amenable to
pressure.
India is among
the few countries where property prices have actually risen after the recession
of 2008 while major economies such as the US, UK & even China have seen an
absolute reduction in property prices.
Ms. Renu Sud
Karnad, MD, HDFC, India's
largest mortage lender, agreed with the finance minister Mr. P. Chidambaram said, "The need to
reduce prices is more in metros. And any effort to reduce house prices &
revive the real estate industry will surely help in kick starting the economy
as the sector is linked with several other sectors. We can only suggest and
coax developers to reduce prices, we can not force them. In the past,
developers / promoters have cut prices & even now some are doing it
indirectly through various schemes"
"Barring
some metros like Mumbai & Delhi where plot of land cost itself accounts for
70% to 80% of the home value, prices are still affordable in tier - II and tier
- III cities." Bankers who attended the meeting said Chidambaram's intent
was to revive sentiments.
Lower Monthly
Payments..!
The finance
minister Mr. P. Chidambaram urged banks to lower
monthly payments on loans for consumer durables though he made no reference to
the discussion on property prices.
The UPA
government, which is in the dock for alleged corruption scandals, is also faced
with the challenge of reviving an economy in which growth has slipped to 5 per
cent, the lowest since 2003, while inflation remains stubbornly high at just
below 7 per cent.
The central
government is keen to revive its flagging popularity among the influential
urban middle class, which finds itself caught amid the triple whammy of higher
interest rates, inflation and stagnant salary growth in most sectors.
Banks - Exposure to Real Estate Builder Loan
Name Loan Amount
SBI
Rs. 1,44,668 Cr
ICICI Bank
Rs. 81,422 Cr
Axis Bank
Rs. 52,730 Cr
PNB
Rs. 48,475 Cr
IDBI Bank
Rs. 36,784 Cr
Bank of Baroda
Rs. 27,157 Cr
StanChart
Rs. 26,028 Cr
HDFC Bank
Rs. 25,020 Cr
ET
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