Wednesday, September 4, 2013

RBI's new home loan norms will push property prices higher: DLF

The Reserve Bank's circular asking lenders to link the disbursal of home loans to the stages of construction of property may lead to liquidity crisis and rise in property prices, India's biggest real estate developer DLF told NDTV.

The central bank on Tuesday said upfront disbursal of lump sum loans should not be made in case of incomplete or housing projects under construction. It also asked lenders to stop "innovative housing loan schemes," popularly known as 80:20 and 75:25 schemes.

Such schemes involve a tripartite arrangement among the bank, the buyer and the builder and involve upfront disbursal of home loans to developers. The interest/EMI on the housing loan is serviced by the builder during the construction period.

The RBI said such home loan products are likely to expose banks and their borrowers to additional risks. These loans are on the books of buyers, and not developers, making them risky.

Rajeev Talwar, group executive director of DLF told NDTV that it's a very funny idea that the discontinuation of such schemes would lead to price cuts.

"By making money shorter, you are making a case of opposite," he added.

Mr Talwar also said that it's a misplaced notion that these loans delay construction, lead to speculation and may be diverted to other projects.

"These loans are construction linked and not time linked. This is not a case of diversion of money, but it is actually a case to help on with the construction of project on time," he said.

The latest circular coincides with governor D Subbarao's exit from the central bank. Many critics, including top honchos from India Inc., have often held RBI's tight policy under Dr Subbarao responsible for the slowdown in the economy. Under his leadership, the RBI raised policy rates 13 times between March, 2010 and October, 2011.

"It was perhaps a parting gift... I don't think the RBI has been spectacularly successful in doing so in very many other sectors," Mr Talwar said.

Public sector banks have limited exposure to such schemes. HDFC, India's biggest mortgage lender, could be the largest listed player to offer such schemes. ICICI Bank and Axis Bank offer more 20:80 schemes than others, analysts said.

Lalitkumar Jain, chairman of real estate lobby CREDAI said in past RBI circulars have resulted into reversal of good market sentiments affecting economy and concerning housing sector

However, Pradeep Jain of Parsvnath Developers said RBI has taken a good step.

"I am in favour of RBI because if a financial institution gives 80 per cent of loans and tomorrow the developer diverts the money to other projects, it will become a major concern," he added.

Shares in real estate companies fell with DLF leading the losses. Indiabulls Real Estate and Housing Development & Infrastructure traded with over 3 per cent cuts.

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