The decision of Reserve Bank of India (RBI) allowing developers to raise funds through external commercial borrowings (ECBs) via approval route for low cost housing has been welcomed by the real estate industry. The idea was proposed this year, in the Union Budget for the year 2012-13 and was one of the most awaited policies of the RBI. It is expected that the move would give boost to the industry, which is already witnessing severe liquidity crisis.
“It was a much awaited guideline and we all have been looking forward to it. It would help in creating a stock for low-cost housing in the country,” says Manoj Goyal, director, Raheja Developers.
The provisions of the RBI’s notification say that ECBs can be availed by developers for affordable housing projects and Housing Finance Companies (HFCs)/ National Housing Bank (NHB) financing prospective owners of low cost housing units. The developer must have a proven track record, five years experience in residential projects and must have fulfilled all his previous financial commitments. Further, the project must be free from any litigation.
Further RBI has defined affordable housing project as a project, which has 60 per cent of permissible floor-space-index (FSI) for units having maximum carpet area of up to 60 square meters. In addition there is a limit of USD 1 billion that can be borrowed. “Going forward, the limit of USD 1 billion will need to be looked at if we are to overcome the housing shortage of 26 million units,” says Brotin Banerjee, MD and CEO Tata Housing and Development.
However, some industry experts believe that there are risks too. For instance, there is always a risk of currency fluctuation involved while borrowing from an international market. Expressing this concern Sanjay Dutt, executive managing director, South Asia, Cushman and Wakefield says, “Domestic finance is available at an interest rate of 13 per cent while rates is much lower at 4-8 per cent abroad. However borrowing funds internationally involves risk of currency fluctuation and hedging cost. Moreover not every lender in the international market may want to give loans for real estate in India and funds may be available to credible few developers only. ”
However, it is certainly a positive step by the government as there are limited funds available in the domestic market. “It is always better to have a global capital pool than being restricted to sources at home,” adds Dutt. The policy will provide an impetus to the industry and assist developers in accessing funds.
Sruthi Kailas, MagicBricks.com Bureau