Availability of funds a concern for real estate industry: Experts

Reserve Bank of India’s conservative policy on bank lending to the real estate is affecting the sector as availability of funds is becoming a serious concern, industry experts said.

"The real estate situation today is quite serious. The availability of funds is restricted. If this is the atmosphere, how can we expect people to invest in this sector. Another challenge is that the availability of debt has reduced. RBI has restricted banks to give loans to the real estate sector," Piramal Group Chairman, Ajay Piramal, told reporters on the sidelines of a CII Real Estate Conclave here today.

Private equity lenders are also cautious while lending to the sector, he said.

"The cost of private equity funds is high, which is another major concern for us. If they don’t get 30% return on their investments, they will not invest as they feel the risk is high. So the main problem is availability of funds," he said.

Apart from availability of funds, regulatory permission is also emerging as a serious cause of concern for the industry, he said.

"We are facing a few regulatory problems especially in getting permissions for our projects. Government and regulatory authorities must realise that giving quick permission is in the interest of the consumers. The delay would only result in shortage of house stock," he said.

The gap between demand and supply of housing stock was leading to increase in property prices, Godrej Group Chairman, Adi Godrej, said.

"The great disadvantage of this industry is that very often supply does not match demand and then prices rise because there is a shortage of supply. If regulatory approvals are available quickly and if extra FSI is granted as we have in New York, Shanghai or Hong Kong, given that the availability of land is less, we will be able to create more housing stock. If supply is more than demand, I hope the prices won’t go up," Godrej said.

On the RBI’s policy of increasing rates for curbing inflation, managing director of Hiranandani Group of Companies, Niranjan Hiranandani, said, "increasing mortgage rates will not help curb inflation. It will only affect the sector as many people would not opt for buying houses and the demand would drop. Instead, the regulators must support the sector and bring down the interest rates."