Concerns over the recent ban on subvention schemes and the liquidity crunch in the real estate sector were some of the concerns highlighted in the national conference NATCON held in Tel Aviv, financial capital of Israel, last week from 5-7 August, 2019. The conference, organized by the Confederation of Real Estate Developers Association of India (CREDAI), the apex industry body of real estate developers, saw about 1,200 builders from 200 cities across India participate in the event.
Government’s recent decision to restrict financing of subvention schemes by housing finance companies (HFC) was the most talked about concern among the participants. “The National Housing Bank's (NHB) decision to ban lending by HFCs under subvention scheme was "impulsive" and should be rolled back to boost sales," said Jaxay Shah, chairman, CREDAI. The decision was "immature" and it was taken without any consultations with the stakeholders. Government should rollback the decision against subvention scheme as it benefited the homebuyers, added Shah.
NHB issued a circular last month asking HFCs to "desist" from offering loans under subvention scheme, wherein real estate developers pay home loan interest on behalf of the homebuyers for a certain period, typically the time the project remains under construction.
Besides that, developers were also concerned about the liquidity crunch, both at the developers end and for home buyers in the present market. “Liquidity crunch is the main issue at present; banks and non-banking financial companies (NBFCs) are reluctant to lend money to real estate sector," said Pankaj Goel, secretary, CREDAI.
Not only developers, even financial institutions participating in the event agreed that liquidity is the biggest problem that sector is grappling with. “Real estate sector is passing through 'tough times' because of liquidity crunch and solution has to be found to address the issue," said Renu Sood Karnad, managing director, HDFC Ltd. Liquidity crisis was there since long as both homebuyers and investors are out of the market, but “it started worsening following the liquidity crisis in non-banking finance companies (NBFC) sector," said Karnad. "We never saw such a problem in real estate sector in the last 40 years and we should find a solution at the earliest," she added.
To overcome the situation and improve the homebuyers’ demand, Satish Magar, president, CREDAI said that “interest rate on home loan should be brought down to 7.5% per annum. Besides that, additional deduction of ₹1.5 lakh on home loan interest on affordable housing, announced in the Finance Bill 2019, should be provided to all borrowers without any cap of ₹45 lakh apartment price."
CBRE India, a real estate consultancy firm, released a joint report at the event, stating that the sector would expand tremendously by 2030, led by new asset classes such as co-working, co-living, student housing and real estate investment trusts (REITs).