FM SIGNALS NEXT DOSE OF REFORMS
NSE EVENT Govt working closely with RBI to address realty sector’s problems: FM
MUMBAI: The government’s next round of reforms is likely to be focused on real estate, with finance minister Nirmala Sitharaman saying that the prevailing slowdown in the sector needs to be addressed soon.
The government is working closely with the Reserve Bank of India (RBI) to address issues faced by the sector, Sitharaman said at an event marking the silver jubilee celebration of the National Stock Exchange of India on Tuesday.
“Real estate sector requires a lot more attention because the sluggishness which prevails there has got to be addressed,” she said. “The government is very keen and is working very clearly together with Reserve Bank of India (RBI) to see how best we can make necessary tweaks to the existing blocks to help the people who are affected in this one sector which I have not really completely addressed till now.”
The real estate industry has failed to recover from the twin shocks of the ban on high-value currency notes in November 2016 and the goods and services tax that was introduced in July the following year.
This has resulted in piling inventory, stagnant-to-falling property prices and dwindling funding for developers.
Real estate projects worth ₹1.8 lakh crore are stalled across India, according to Anarock Property Consultants.
The focus on real estate is part of the government’s broader plan to kick-start economic growth,
THE FOCUS ON REAL ESTATE IS PART OF THE GOVT’S BROADER PLAN TO KICK-START ECONOMIC GROWTH
which has slowed to a six-year low of 5% in the quarter ended 30 June.
“There are drastic measures that are needed now to infuse liquidity into the sector. If there is zero GST implemented for real estate projects at least for six months, it would make a marked difference. There is an urgent need for active lenders in real estate, with existing banks not lending enough,” said Niranjan Hiranandani, co-founder and managing director of Mumbaibased developer Hiranandani Group.
The finance minister said alternative funds have approached the government with proposals to invest in the sector as long as there is some support mechanism available for reviving the real estate sector.
Sluggish demand and the consequent liquidity crunch in the real estate sector have also affected non-bank lenders and banks through increasing slippages in their loan books. Several realty firms are struggling to repay loans.
According to a Fitch Ratings report in October, around $10 billion of development loans are coming up for repayment in the first half of 2020 and this may impact mainstream banks that have lent money to shadow lenders or invested in their bonds. Sitharaman said the government wants to ensure that the crisis in the real estate sector does not spill over to other industries.
Defaults by Dewan Housing Finance Corp. Ltd and Altico Capital have aggravated the issue, making banks excessively cautious in extending loans to housing finance companies (HFCs) and non-banking financial companies (NBFCs).
Private sector lenders have the largest direct exposure to the commercial real estate sector and would be susceptible to “assetquality difficulties” if the sector continues to struggle, according to a mid-September Moody’s report.