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Government may relax lending norms for cash-strapped reality sector

The Economic Times, New Delhi

October 01, 2012

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The Finance Ministry is considering a proposal to relax funding norms for the realty sector so that good housing projects are not starved of funds.

"The Ministry is actively looking at options ... how to ramp up demand in the housing sector. We are studying all the possible impediments," an official source said.

"We are of the view that good project will be funded," the source said.

Banks are cautious in lending to the real estate developers because there is a huge mismatch in price and demand.

While dismissing general perception of holding on to inventories, real estate developers have been expressing concern that many projects are stalled due to lack of funds.

Finance Minister P Chidambaram in his meeting with heads of public sector banks last month had pointed out that close to 5 lakh flats were lying vacant in Mumbai despite robust demand for housing.

Following this, Financial Services Secretary D K Mittal met bankers and the real estate developers body Confederation of Real Estate Developer's Associations of India (CREDAI) earlier this month and discussed various issues affecting the sector.

The National Housing Bank, the regulator of housing finance companies, has been entrusted with the job of identifying viable projects across 10-15 cities and bring together a consortium of lenders to fund these projects.

Bank credit to commercial real estate has slowed significantly in the last one year. It contracted 1.8 per cent during April-July against 4.4 per cent growth in the same period of previous year.

As per the Ministry of Housing and Urban Poverty Alleviation, India faces urban housing shortage of over 26 million units. Besides, mortgage to gross domestic product ( GDP) penetration in India is a meagre nine per cent as against 15-30 per cent in its peer group of south-east Asia.

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