The recent housing loan scam would increase developers’ dependence on private money-lenders. While cash flow from various quarters like private equities and investors has already become scarcer, the scam is expected to adversely impact credit flow to real estate projects from banks too.
“But now, banking institutions will be just scared of lending which means that builders will have to rely on private lending at a higher rate of interest affecting the cost of construction,” said Lalit Kumar Jain, vice-president of the Confederation of Real Estate Developers Associations of India (CREDAI).
Reacting to the recent arrest of officials of banking and financial institutions, CREDAI on Friday insisted that the arrests are an isolated incident and are not related to real estate sector alone. “The modus operandi of getting loans may be wrong. It is an issue of graft and corruption but let’s not call it a scam,” said Rajan Daryani, president of the developers’ body that represents 18 cities in the state outside of Mumbai and about 1,500 developers. Daryani was speaking at a CREDAI organized property exhibition at the Bandra-Kurla Complex showcasing houses in places like Pune, Pimpri Chinchwad, Nagpur, Nasik, Sangli, Solapur, Kolhapur, Akola, Amravati and Aurangabad.
The association maintained that the public sector banks had a very robust system in place and that it is difficult to get a loans sanctioned due to the strict checks and balance. Jain added that the association will soon make a case before the RBI for a transparent mechanism while sanctioning loans to developers. The association has further demanded that the state government include not only developers but also financial institutions under the purview of its proposed real estate regulatory bill.
According to CREDAI, the total exposure of real estate to the total lending is only 4%. “Banks earn large profits from real estate lending as there is a high rate of interest involved. There has been no record of housing finance going bad, not even during recession,” said Jain.