Five Lakh Flats Lying Vacant in India


Mr.P.Chidambaram, the new finance minister, had asked chiefs of government owned banks to put pressure on real estate developers / promoters / builders to lower property prices in order to get the economy moving.

Lower Flats Prices..!

In a meeting held recently with PSU bank chiefs, the finance minister saidl bankers to impress upon builders the need complete projects according to schedule & lower the prices of apartments (flats) which are ready for possession and are not being sold.

“Builders are sitting on huge inventories (unsold flats) which they are neither able to sell at the prevailing prices nor are they allowing others to buy by lowering the prices,” a major banker present at the meeting quoted Me. P. Chidambaram as saying.

5 Lakh Flats Lying vacant..!

Mr. P. Chidambaram pointed out to the PSU bank bosses that there are close to five (5) lakh flats lying vacant.

“A huge quantum of capital is locked. Why are PSU banks not putting pressure on them (builders / developers / promoters ) to lower prices since you have funded both the builder & the retail home loan borrower?” he asked bankers.

According to Reserve Bank Of India (RBI) data,  PSU Banks have lent close to about Rs. 1.2 lakh crore to builders / developers / promoters while their housing loan portfolio came to Rs. 2.5 lakh crore in the last week of March 2012 .

Premium to Affordable..!

 Mr. S. Raman, CMD, Canara Bank told, “Given the slowdown in the economy, builders or  / developers / promoters should take a relook at the market condition & should effect some reduction in prices across the board from premium to affordable class. Builders  or promoters should not expect only banks to lower interest rates on housing loans to revive the economy, they too should contribute by lowering home prices which, by itself, would act as an additional stimulus to the economy”

“You must instigate borrowers to demand possession immediately or as per the schedule. You must also find out what is enabling them to hold on to these vacant flats,” said a PSU senior banker quoting the finance minister.

Real Estate Regulator..!

While no one opposed the Mr. P. Chidambaram’s suggestions, some bankers stressed the need to put in place a real estate regulator to tackle malpractice in the real estate sector.
Builders / promoters, however, appear reluctant to lower prices on account of what they described as rising input costs.

Mr. T Chitty Babu, Chairman & CEO of Akshaya Homes, a Chennai based Property builder, and national secretary of CREDAI, a body that represents real estate developers across pan India said, “I do not think there’s scope for a price cut given the kind of input &  finance cost escalation we have already witnessed, unless we recover these costs along with the requisite margin”

Single Window Clearance..!

Mr. T Chitty Babu also said, ''Price rationalisation can be achieved only by means of enhancing availability of funds for projects and single-window clearance. Cost reduction of 10 to 12% can be easily achieved if the government decides to introduce single window clearance"

Banks may have little leverage over builders / promoters whose loan accounts are regular. However, those builders seeking to restructure loans would be more amenable to pressure.

India is among the few countries where property prices have actually risen after the recession of 2008 while major economies such as the US, UK & even China have seen an absolute reduction in property prices.

Ms. Renu Sud Karnad, MD,  HDFC, India's largest mortage lender, agreed with the finance minister Mr. P. Chidambaram said, "The need to reduce prices is more in metros. And any effort to reduce house prices & revive the real estate industry will surely help in kick starting the economy as the sector is linked with several other sectors. We can only suggest and coax developers to reduce prices, we can not force them. In the past, developers / promoters have cut prices & even now some are doing it indirectly through various schemes"

"Barring some metros like Mumbai & Delhi where plot of land cost itself accounts for 70% to 80% of the home value, prices are still affordable in tier - II and tier - III cities." Bankers who attended the meeting said Chidambaram's intent was to revive sentiments.

Lower Monthly Payments..!

The finance minister Mr.  P. Chidambaram urged banks to lower monthly payments on loans for consumer durables though he made no reference to the discussion on property prices.

The UPA government, which is in the dock for alleged corruption scandals, is also faced with the challenge of reviving an economy in which growth has slipped to 5 per cent, the lowest since 2003, while inflation remains stubbornly high at just below 7 per cent.

The central government is keen to revive its flagging popularity among the influential urban middle class, which finds itself caught amid the triple whammy of higher interest rates, inflation and stagnant salary growth in most sectors.

Banks - Exposure to Real Estate Builder Loan

Name                 Loan Amount

SBI                     Rs. 1,44,668 Cr

ICICI Bank            Rs. 81,422 Cr

Axis Bank              Rs. 52,730 Cr

PNB                    Rs. 48,475 Cr

IDBI Bank              Rs. 36,784 Cr

Bank of Baroda         Rs. 27,157 Cr

StanChart              Rs. 26,028 Cr

HDFC Bank            Rs. 25,020 Cr

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