RBI to give infrastructure status to Real Estate Sector
The Housing Industry is expecting some sops from the Reserve Bank of India (RBI) after a suggestion from the Finance Minister Mr. P. Chidambaram on infrastructure status according to the sector.
According to the Finance Minister Mr. P. Chidambaram, it would relax the provisioning norms and release more funds to Banks to extend loans at attractive rates to the Industry.
According to Mr. Lalit Kumar Jain, the National President of the Pan-India Real Estate Developer’s body CREDAI the infrastructure status has been their demand for several years, the RBI permits Banks to lend just six percent of their total lending to the Commercial Real Estate whereas the global average is 25 percent. In the US, it is 32 percent and in China 22 percent. It is cheaper to raise money through NCDs than taking loans in the Banks.
The Housing Industry, which has been in discussion with the Finance Minister on this issue, feels that the RBI should atleast consider infrastructure status to affordable housing, if not the whole Real Estate Sector. This is critical as it would mean that Builders can borrow for land purchase. Today, Banks are prohibited from giving loans for this purpose.
There would be several other advantages like direct tax concessions, tax holidays, excise exemption (excise is currently 12 percent) etc.
“These steps are encouraging for the Real Estate Sector. Real estate has been seeing challenging times and lack of quality capital at reasonable cost has been a big challenge. These initiatives would increase liquidity as well as ease cost of capital”.