News: Liquidity crunch, stagnant demand and cartelisation continue to ail realty-25-05-2020
Updated on May 25, 2020
Liquidity crunch, stagnant demand and cartelisation continue to ail realty
CREDAI writes open letter to PM for real estate sector survival
Apex realty developer body Credai, representing more than 20,000 developers across the country, has written an open letter to Prime Minister Narendra Modi seeking urgent measures to revive the ailing real estate sector. Liquidity crunch, stagnant demand and cartelisation of raw material continue to be major impediments for the real estate industry which is unable to kick-start its efforts, the association has said.
With 52 million employed in the sector, Credai has urged for one-time restructuring. Noting that the current situation is much worse than the 2008 global financial crisis when the RBI permitted a one-time restructuring (OTR) saving hundreds of industries and lakhs of jobs, the association has said a similar scheme be instituted by all lending institutions.
Since real estate was already reeling under a cyclical downturn before Covid-19, such restructuring needs to be allowed for all accounts that were standard as on December 31, 2019, adds the association’s letter.
Additional funding
The body also has asked for additional institutional funding to help revive the sector. While the SBI, in a circular dated March 20, 2020, has permitted additional credit of 10 per cent of the existing fund based working capital limits for 12 months at 7.5 percent per annum rate of interest, under the SBI Emergency Credit Line to tide over the crisis, the body has suggested similar directions be issued to all banks and NBFCs, including housing finance companies, to institute a scheme to permit additional credit equal to 20 per cent of the existing real estate project related advances.
This could be either by way or working capital or term loan or NCDs or any other instrument, adds the note.
Spurring demand for housing
Citing certain policy innovations for triggering demand, the association has said for the survival of the real estate industry, the stagnant demand for housing needs to be revived. It has enumerated certain policy benefits for home buyers so as to encourage investment in residential properties.
The association has said the government should reduce the maximum rate of interest on new home loans to 5 per cent by subsidising interest component of EMIs for the next five years; principal deduction on housing loans under Section 80C be increased to ₹2.5 lakh; interest deduction under Section 24 on housing loans for home buyers may be increased to ₹10 lakh.
Among the other demands were no capital gains for residential properties held for longer than one year; and since the current economic uncertainty and job insecurity would not allow for purchase of residential property, the association has suggested a scheme whereby a homebuyer would need to pay only margin money with no EMI for 24 months.
The RBI should also allow housing finance companies a 24-month subvention scheme to homebuyers from developers, adds the association’s letter. This should be adjusted by extending the loan tenure by 24 months with subvention amount recovered in the last two months.
