Cash crunch will force realtors to reduce property prices in Ahmedabad: Bankers

The real estate industry in the city is facing hurdles - not only from bankers but also from buyers. And that is why a price correction in realty is likely soon, say bankers.

According to bankers, they are reluctant to finance developers in Ahmedabad because they (realtors) have fallen into liquidity crunch. At the same time, the developers are also not seeing much demand from customers in view of the rising prices of houses. Bankers say the liquidity crunch faced by the developers will force them to sell off properties at a lower price.

As a result, the real estate industry is going to see a correction very soon.

They say the RBI has already set guidelines for the banks to control financing the builders. And this has made the bankers careful in financing real estate projects in the city.

“The developers in Ahmedabad have started witnessing liquidity crunch. On one hand the banks are reluctant to finance them, on the other the demand for houses has remained stagnant due to their exorbitant prices. So the developers are not getting finance.

As per RBI norms, we can give only certain amount of fund to developers so that the prices will remain under control. The effect has already started,” said zonal manager of Bank of India, BB Joshi.

Joshi further said that because of liquidity crunch, the developers are now forced to release their inventory.

“Now, the developers in the city have to sell off their properties with discount in order to source fund. Hence they themselves will bring correction,” he said.

The circle head of Indian Bank, Ashok Vishwakarma, said that the banks’ exposure fund to real estate is almost exhausted. “It is not that banks are not funding the sector but a certain dedicated fund for real estate is over. The case is not only with one bank, but with the whole banking industry. Many banks have already funded realty sector in Ahmedabad and the fund is now over. This might have brought developers into liquidity crunch,” he said.

Some banks are still being choosy to fund realty projects. “In case of Punjab National Bank, the finance quota for realty is almost getting over. So we have to be very selective towards the sector. Because of RBI norms, banks have got restrictions and cannot fund realtors beyond certain limit,” said PNB’s circle head Ved Mathur.

The real estate industry believes that the developers do not get finance because there is a cash crunch among investors. “The realtors see that investors are in cash crunch. Hence, the investors have almost started selling their properties at discounted market price. However, as the investors had bought properties earlier, they are booking profit even though they are selling it at discount. This move will encourage realtors to sell their units at discount. As a result, a correction of 10% to 15% is going to happen soon,” said CEO of Residential Properties, Space Management, Hitesh Shah.