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The RBI’s three-point formula to rescue Indian real estate

The RBI’s three-point formula to rescue Indian real estate

The RBI’s three-point formula to rescue Indian real estate
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By Jude Sannith  Apr 18, 2020 9:34:16 AM IST (Updated)

The RBI’s decision to allot Rs 10,000 crore to the National Housing Bank and cut reverse repo rate by 25 basis points, has brought some cheer to the struggling real estate sector. The move is being seen as one taken with the clear intent to infuse liquidity into a crisis-ridden property market.

The RBI’s decision to allot Rs 10,000 crore to the National Housing Bank and cut reverse repo rate by 25 basis points, has brought some cheer to the struggling real estate sector. The move is being seen as one taken with the clear intent to infuse liquidity into a crisis-ridden property market.

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“The RBI’s decision to allot Rs 10,000 crore to the National Housing Bank will help provide capital to HFCs and eventually provide major relief to developers battling liquidity issues in COVID-19 times,” said Anarock Chairman Anuj Puri.
Nahar Group’s vice-chairperson Manju Yagnik said that the reserve bank’s slashing of reverse repo rate from 4 percent to 3.75 percent would enable banks to lend more to consumers and help boost home-buying. “On the regulatory front, for all accounts where moratorium or deferment has been applied, there would be an asset classification standstill,” she added, “NBFCs have flexibility under current accounting standards to provide relief to borrowers.”
NBFC loan-repayment gets a breather
The RBI’s decision to allow loans from NBFCs to real estate companies to be allowed the same benefits as those processed by commercial banks is a positive step, said NAREDCO President Niranjan Hiranandani. “The RBI had earlier permitted extension by one year without asset classification downgrade if the date of commencement of commercial operations (DCCO) was delayed for reasons beyond the control of promoters,” said Hiranandani, “Loans by NBFCs to commercial real estate will get the same relief. This move will positively impact NBFCs and real estate.”
Puri added that the decision would bring much-needed relief to cash-starved developers. “It will help in easing out time for maintaining and managing cash flows for these developers,” he said.
Much-needed and long-awaited
The RBI’s stimulus to the real estate sector comes even as the industry has been bleeding in the aftermath of back-to-back lockdowns, a pronounced liquidity crisis and flat price-appreciation. “After the extension of the nationwide lockdown, a slowdown was inevitable,” said Ankit Kansal, MD and CEO, 360 Realtors, “For this reason alone, the industry was looking forward to concentrated efforts by the government.”
The timing of the announcements also seems just about ideal. The real estate sector is battling one of the worst labour crises in recent times. Several migrant construction workers have begun migrating back to villages to work in agriculture, in the light of an uncertain future for real estate amidst the lockdown.
Earlier this week, the Home Ministry had allowed a partial lifting of the nationwide lockdown on real estate projects outside COVID-19 hotspots. However, the ministry’s guidelines made it amply clear that labour for these projects should not be sourced from outside the district in question.
Several developers have also expressed concern that labour shortage could be a serious worry that the sector will have to contend with. “There is no guarantee that workers will return as soon as the lockdown ends instead of choosing to remain with their families in their home villages,” said Nayan Raheja, executive director, Raheja Developers. The resulting situation meant that developers have begun bracing for construction delays of anywhere between two months to three quarters.
Real estate supply chain hit
Construction delays have become almost inevitable not just owing to the lack of workforce, but also because the lockdown has impacted the supply chain infrastructure to Indian real estate.
An Anarock study recently earmarked material shortages at estate projects as one of the reasons for an almost-certain delay in their completion schedules. What’s worse is the cyclical impact that this could have as a recent report by CRISIL said that slowing construction activity would in turn impact future demand for construction material like tiles. Companies say the non-availability of labour on construction sites will further delay deliveries and timelines.
“We continue to monitor the situation real-time every day though we can feel the brunt of it in the COVID-affected districts where markets are locked down,” said Alok Agarwal, Chief Marketing Officer, Orient Bell Tiles, “We as manufacturers are affected, but since this scenario has a much bigger impact, it is essential that we treat this with caution & respect.”
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