Real estate sector needs to tap finance from banking system not homebuyers: Housing ministry
1 min read 29 May 2023, 04:47 PM ISTJoshi highlighted the banking sector’s cautious approach to investing in real estate and suggested a market-based borrowing system would differentiate between good and bad borrowers.
PremiumNew Delhi: Real estate developers in India should rely more on financing from the banking system rather than depending heavily on homeowners’ investments, the ministry of housing and urban affairs said on Monday.
Speaking at the CII Annual Conclave on Indian Real Estate 2023, Manoj Joshi, secretary, ministry of housing and urban affairs (MoHUA) emphasized the need for a credible framework to differentiate between good and bad projects to enable the sector to access capital from banks.
Joshi expressed concerns over the current financing structure, where contractors and vendors working for developers primarily rely on advances from government clients or developers themselves, which leads to a shortage of working capital throughout the supply chain. Consequently, projects experience delays, higher costs, inefficiencies, and prolonged completion timelines. He emphasized the importance of providing capital to this vital segment of the real estate sector to avoid hindering economic growth.
Acknowledging that there have been instances of misconduct in the sector, Joshi highlighted the banking sector’s cautious approach to investing in real estate. He suggested that a market-based borrowing system would differentiate between good and bad borrowers. However, due to the predominance of public sector-based banking, the inability to distinguish between reliable and unreliable borrowers has led to a general apprehension towards financing the real estate sector.
To address this challenge, Joshi called for the development of a credible framework, such as a rating system, that can effectively differentiate between good and bad projects, enabling access to capital from banks.
Joshi also discussed the need to establish efficient systems within government bodies, such as the Central Public Works Department (CPWD) and the National Buildings Construction Corporation (NBCC), to ensure timely payments to contractors and vendors. The government is exploring the possibility of providing funds directly to vendors to streamline the process.
The secretary also highlighted the importance of Real Estate Regulatory Authorities (RERAs) in ensuring timely delivery of homes to consumers. He emphasized the need for banking systems to provide financing that enables developers to expedite construction and deliver homes as promised.
The real estate sector in India is expected to witness demand for low-cost units that prioritize affordability, said Neel Raheja, chairman of the CII National Committee on Real Estate and Housing. He also noted that growth in the sector will be driven by the services sector, including BPO, high-end technology work, pharmaceuticals, and data centers.
Additionally, industry experts highlighted the positive impact of reforms such as RERA, GST, the framework for Real Estate Investment Trusts (REITs), and the digitization of land records on the growth of the real estate sector.
The ministry of housing and urban affairs emphasized the need for urban planning to evolve in Tier 2 and Tier 3 cities, making it a priority area for the government’s attention.
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