The measures announced  by RBI and government few days back seem inadequate  for real estate to pull the sector out of the sales slump as well as the financial crunch.The RBI classified as priority sector loans by banks to housing finance companies for on lending a maximum of Rs 20 lakh a dwelling unit to individuals; and slashed reverse repo rate and repo rate by 100 basis points, each; and allowed banks to consider under `standard category’ their commercial real-estate exposure that are restructured up to June 30, 2009. This meant that lenders will not consider these accounts as Non-Performing Assets (NPAs).

The Government termed ‘housing’ a potentially important source of employment and demand for critical sectors. It said that the sector will be kept under a close watch and additional measures taken to promote growth . The Centre said the public sector banks would shortly announce a package for borrowers of home loans in two categories: upto Rs 5 lakh; and Rs 5 lakh-Rs 20 lakh. This set the stage for borrowers to anticipate at least 200-300 basis point cut in interest rate, concessions on margin requirements, waiver of processing fee for loans and changes in pre-payment clause — the exact contours of the package are yet to be announced.

While the the industry welcomed the steps taken to stimulate demand , there is a certain sense of disappointment at the absence of a specific relief package for the real-estate sector.

According to Unitech’s Chairman, Mr Ramesh Chandra, liquidity would improve for developers with the loans being restructured.

“Also, for quite some time, banks were not entertaining fresh loans to real-estate companies. I hope with the direction of the RBI, that process will start now.”

Another positive for the sector, the Confederation of Real Estate Developers Association of India (CREDAI) points out, is the move to spur financing and control raw material costs. The reduction in excise on various products is expected to have an impact of about Rs 60 per sq.ft on constructed area if the manufacturers pass on the benefit to the developers.

But the larger challenge is that the demand for housing is not reflected in the order book, as consumers anticipate that residential prices may fall further. This `inaccurate belief’ is hurting sales, says , Mr Kumar Gera, Chairman, CREDAI.

Industry watchers believe that interest rates on housing loans need to come down to 7-8 per cent and loans up to Rs 35 lakh classified as priority sector. A Rs 20 lakh loan means a ticket size of Rs 25 lakh, and that kind of residential pricing is only possible in smaller cities, not in metros and Tier I cities, says Mr Pradeep Jain, Chairman, Parsvnath.

Industry representatives say that some support is required even at Rs 50-70 lakh level to galvanise demand in metros. The limit of up to Rs 20 lakh is definitely going to help the aam aadmi, but given the overall slowdown in the economy there is a need to focus not only at the bottom of the pyramid but also the middle , said a senior industry official.

“Permitting External Commercial Borrowings (ECBs) for real-estate project will be welcome, but I do not know to what extent we will be able to raise money overseas (in the current conditions). But Government can liberalise FDI more,” feels Mr Chandra. He says that although some bit of slowdown had set in earlier this year, the downslide since September was beyond realtors’ expectations.

“End user demand exists even today, but potential buyers are not taking a decision. They feel that the interest rates will come down further…Personally it should come down to 7 per cent. The interest rates will dictate the affordability, not just prices,” he says .

The ideal interest rate for loans up to Rs 5 lakh should be below 5 per cent, whereas for loans up to Rs 35 lakh it should be pegged at below 7 per cent and above Rs 35 lakh should be below 9 per cent, feels Mr Jain.

Another big push could come from removing limits for deduction of interest paid on home loans (currently at Rs 1.5 lakh annually) for a specific period of time. “This could be allowed for a period of 12 or 24 months,” says Mr Gera.

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