Sunday, December 7, 2008

Steps announced by the RBI may bring property developers back from the brink of bankruptcy & possibly infuse life in the housing sector

(Only if the banks lower home loan rates taking cue from the central bank’s action!)

The CRR and repo rate cuts in the past few months haven’t largely impacted the lending rates for corporates or households, as a slowing economy made banks risk averse. Banks were especially reluctant to lend to real estate due to higher risk weightage and a sluggish housing demand.
Restructuring for builders:
In order to help real estate companies tide over the current credit crunch and weak demand, RBI has cut repo and reverse repo rate by 100 bps each on Saturday and allowed restructuring of commercial real estate loans up to June 30, 2009.

Lower interest rate up to Rs. 20 lakh (!) for property buyers:
The loans granted by banks to Housing Finance Companies (HFCs) with a ticket value of up to Rs 20 lakh to home buyers will be classified under priority sector. This means a home buyer gets a loan upto Rs 20 lakh at a lower rate even from HFCs, thus getting a wider choice of lenders.

Ramesh Sanka, CFO, DLF:

“We need to wait and see how soon banks lower their lending rates. When RBI was hiking interest rates, banks were immediately following it, but now when RBI is cutting rates, they are not,”

Sanjay Chandra, MD, Unitech:

"RBI’s policy on restructuring of loans for commercial real estate is ‘very timely’".

Navin Raheja, chairman, Raheja Developers:

"The policy on restructuring has come as a breather for developers, who were close to shutting shop. Several developers, including large ones, had reached a stage where they couldn’t service debt. The RBI’s move will help builders avoid default."
-The Economic Times

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1 comment:

  1. RBI policy change can bring life to real estate companies but it has pushed the banking industry to bankruptcy. So every body please ensure your deposit should not get wiped out in case bank declare bankruptcy due to bad loans to builders.
    This is what happened in US after extending loan to real estate, till today hundreds of banks has failed including world's largest bank Citi.