The fund tap at banks is closing for realtors

Real estate developers are unlikely to get funds easily from banks, even for refinancing debt.

“Banks will insist on repayment of loans. Nobody will go for rollovers because of what has happened,” said a banker who did not wish to be named, alluding to high property prices and shady accounting and financing practices in the sector.

At State Bank of India, project viability is being scrutinised more stringently than before. “Now people are examining projects very carefully. That said, if someone is fulfilling, say 70-75% of our requirement, we could show some flexibility,” said a senior SBI official.

S Sridhar, chairman and managing director of Central Bank of India, said project monitoring will be the key to funding future real estate projects.

“At present we have a 7% exposure to real estate and we are doing away with corporate loans. We are providing only project-specific loans that too we are monitoring them tightly. Such vigilance is necessary because diversion of funds has taken place,” said Sridhar.

“The Reserve Bank of India is watching the banks. So if a developer has to repay, he will have to go to other sources, such as private equity, which charge much higher rates, or alternatively he has to reduce the prices of property to generate money. We will see the impact of liquidity crunch from April when prices will go down,” the unnamed banker said.

Renu Sud, managing director, HDFC said the basic concern is right-pricing in the sector.

“That is what the developers must understand,” she said.
The home loan major is looking at a growth of 22% in its disbursements across the country for the next fiscal.

Right-pricing of the real estate projects is also likely to emerge as the key deciding factor in the funding of projects, said another banker. “So developers need to take a call on that.”

HDFC’s Sud, however, said if a project is good and the developer strong “I do not need to change my method of looking at the developer at all”.

“If the market is low sales will come down. It has happened in 2008, but it has revived again. With the ups and downs you learn to stay with it,” said Sud.

Lending to developers constitutes around 12% of the HDFC’s pshortfolio.