Housing trouble: How banks are still hesitant to lend for affordable housing despite infrastructure status
The affordable housing segment, which is the new rage in the real estate sector after it got infrastructure status last year, still suffers from lack of funds from banks. Market participants feel they still have to wait a few more months before banks embrace such projects. Infrastructure status for the segment was announced by Finance Minister Arun Jaitley in his Budget speech for 2017-18 on February 1, 2017, which allowed builders to borrow from banks at cheaper rates compared to the conventional lenders such as private equities. “That (infrastructure status) means they (developers) should have been able to access a lot of funds at cheaper rates… but that’s not happening. And that’s not happening anywhere,” said Jayashree Kurup, Head of Content and Advisory, at the property consultant website magicbricks.com. She added: “It has not translated into anything on the ground, except may be a boost in sentiment.”
Most market participants blame it on the credibility crisis brought about in the past few years by the slump and lack of sales and delivery of apartments to end-users. “Construction finance has not been doing well — essentially because of the fact that the sales have not been good,” Shrikant Srivastava, Chief Risk Officer, India Mortgage Guarantee Corporation, told IANS. Srivastava, who has also served as the Chief Risk Officer at PNB Housing Finance, further said: “All lenders have burnt their fingers in doing construction finance because projects did not get completed, sales did not happen, and therefore the loans they had taken, they could not pay back.” In the affordable housing space, bankers want to do projects, but as lenders have suffered losses in the prime segment, bankers were shying away from giving construction finance for the segment, he added.
Aditya Kedia, MD of Mumbai-based Transcon Developers, attributed the lack of interest of banks in the sector to the inexperience of the banks in working with realtors. “Even for the banking institutions, it is a new field; so the primary concern these people (banks) have is that since these are smaller-sized apartments, people buying them probably are from the lower income bracket,” he said. Market players, however, feel this lack of trust between the banks and developers would wane in a few months. Kedia was of the opinion that “it is a learning process for both, the developers as well as the banking sector, and I think it will take six to eight months for it to be understood well”.
J.C. Sharma, Vice Chairman and MD of the Bangalore-based Sobha Ltd, however, contended: “If you (developers) have a good track record in operations, there are no dearth of lenders… even from the banks.” In view of the recent frauds, mismanagement and rising NPAs, “lending has to happen with far more scrutiny and better processes than what it used to be — and we should welcome it from a systemic benefit point of view,” he opined. Prasoon Chauhan, CEO of NCR-based Homekraft, said: “Bank, government, everybody is supporting the affordable housing (segment).” So, eventually it should work out.