New Delhi: Real estate body CREDAI has written an open letter to Prime Minister Narendra Modi seeking immediate measures from the government to help the real estate sector ‘survive’.
In this distressful situation arising out of the COVID-19 calamity, we in the real estate sector seek immediate relief for our survival, it said.
The industry body said that it has done its best possible to mitigate the plight of over five crore labour force in the sector by providing food and shelter. It said that although the loan moratorium may be helpful for the sector in the long run, the sector requires a one-time loan restructuring scheme as allowed by the Reserve Bank of India in 2008 amid the global financial crisis.
Since real estate was already reeling under a cyclical downturn before COVID-19, such restructuring needs to be allowed for all accounts which were standard as on 31.12.2019, the letter by the Confederation of Real Estate Developers’ Associations of India (CREDAI) said.
CREDAI further said that the Centre should direct all banks, non-banking finance companies (NBFC) and housing finance companies (HFC) to institute a scheme to permit additional credit equal to 20 per cent of the existing real estate project related advances, at the MCLR with no additional security. It also suggested that government guarantees can also be extended for such credit if need be.
The letter dated 24 May also requested that the penal interest charged by banks and financial institutions be suspended for a period of one year or until the pandemic abates. Alleging sudden increase in cement and steel prices by the producers, CREDAI said that controlling prices of the raw materials is highly essential for construction activities to start.
Across various states, there has been an increase of Rs 100-250 per bag of cement and about Rs 2,000-Rs 2,500 per metric tonne of steel, it said. It further said that actual disbursements from the Alternate Investment Fund (AIF) – Special Window for Affordable and Mid-Income Housing of Rs 25,000 crore has been minimal although the fund has achieved its first closing at Rs 10,500 crore very quickly.
“The chief constraint in the operationalization of the fund is the rigidity in its mandate, wherein the existing lender (Banks/NBFC’s/HFC’s/) is not being accommodated at all. Secondly, the AIF expects a return of about 12-15 per cent on its investments in projects, which is very high given the fact that the projects in the ambit of the fund are ‘stalled”, it said.
This high return on investment leads to an increase in project cost, which eventually passes on to the already aggrieved home buyer. In the current situation among other recommendations, CREDAI has sought quick disbursement of funds to complete the stuck projects at an expected RoI of 8-9 per cent.