New RBI norms may boost Low-cost housing
Mumbai: As per real estate developers and the Housing Finance Companies (HFCs); the apex bank’s decision to relax norms on the availing of foreign loans for cheaper or affordable housing might encourage and attract numerous more developers to enter the segment whereas providing a lift to existing ones, although developers may be compelled to take into consideration the rupee’s volatility against the dollar.
The Reserve Bank of India recently stated that developers possessing a minimum experience of three years in constructing low-cost, affordable houses would be permitted to raise money via external commercial borrowings (ECBs) as opposed to the prior five-year norm.
As per the guidelines set by the Reserve Bank of India, residential units which involve a pricing of thirty lakh rupees or below along with the loan amount restricted to a maximum of twenty five lakh rupees, qualify as low-cost housing.
Agnate to the chairman and managing director of the National Housing Bank (NHB), construction companies and builders in the demand and supply side would be capable of tapping into the international capital market, through this route.
All External Commercial Borrowing (ECB) housing sector applications would be routed through the NHB. ECB in real estate was permitted in the last budget.
However, adequate caution should be observed by those who raise funds via the ECB route, as they would be required to consider the fluctuations of the Indian rupee since the RBI notification requires that ECBs be swapped into a rupee loan for the entire maturity on a fully hedged basis. The Indian rupee from the first of April, has depreciated by 9.2% against the dollar till date.
Leading bankers of the country have estimated that the rupee interest rate on affordable or low-cost housing loans, including hedging costs, will range from 9% to 12%.
Even after incurring a hedging cost, raising money through ECBs is still an attractive option. Although the procedure for availing the same is considerably cumbersome and needs to be eased.
In accordance with the real estate research firm PropEquity, greater access to capital would be achieved with the relaxation in norms for HFCs. Hence, making the process of getting low-cost finance relatively easier for developers.
According to the vice-chairman and chief executive officer at HDFC, which is India’s largest mortgage lender, a new avenue presents itself for raising revenue. Loans amounting to $500 million can be absorbed while being applied in an application for the same.
As per Harihar Krishnamoorthy, head of fixed income, currency and commodities at FirstRand Bank India, “The hedging cost for a three-year period, appropriate for ECBs, has come down in the last three months as it is more correlated with policy rates rather than currency fluctuations.”
Madhu Menon, chairman of Micro Housing Finance Corporation Ltd, an HFC, believes that highly organized firms possessing a good track record and scale would be able to raise money from international lenders. “Foreign exchange risks can be costly and those raising money should have expertise in this,” he said.
On the flipside, Tata Housing Development Co. Ltd, which in 2009 launched its first affordable housing project in Mumbai, do not comprehend lot of advantage in overseas loans.
The managing director and chief executive of Mahindra Lifespace Developers Ltd – Anita Arjundas, is not very keen on ECBs either, as it cannot be used for buying land.
The RBI is evaluating the benefits of raising funds through the ECB route versus funds raised from domestic sources. However, in the current market conditions, the pricing difference between the two is not much.
