Demands one-time debt restructuring, resumption of subvention scheme and quick deployment of Rs 25,000 crore stress fund for completing stalled housing projects
Stating that the novel coronavirus, or COVID-19, pandemic is much worse than the 2008 global financial crisis, the Confederation of Real Estate Developers' Associations of India (CREDAI) has written to Prime Minister Narendra Modi beseeching him to boost liquidity by reducing the rate of interest to 5 percent and introducing a scheme wherein homebuyers need to pay only the margin money upfront and no EMIs for 24 months.
It also demanded that the Rs 25,000 crore stress fund for completing stalled housing projects be deployed at the earliest.
- Reduce the maximum rate of interest on new home loans to 5 percent by subsidising interest component of EMIs for the next five years.
- Raise limit of principal deduction on housing loan under Section 80C to Rs 2.5 lakh and interest deduction under Section 24 to Rs 10 lakh.
- No levy on capital gains for residential properties held for a period of longer than one year.
- Resume subvention-based funding.
It wants National Housing Bank and the Reserve Bank of India (RBI) to withdraw their circulars on subvention-based funding, with only safeguards being the acceptable rating of the developers and the project.
The economic uncertainty and job insecurity in the aftermath of COVID-19 may not encourage homebuyers to purchase property at this point in time. “A scheme whereby a homebuyer would need to pay only margin money with no EMI for 24 months will address this insecurity. Here, RBI may allow housing finance companies (HFCs) a 24-month subvention scheme to homebuyers via developers. This 24 months’ subvention can be adjusted by extending the loan tenure by 24 months with the subvention amount recovered in the last two months,” the CREDAI letter stated.
With regard to boosting liquidity, CREDAI said a one-time restructuring scheme as was permitted by RBI in 2008 may be quickly instituted by all lending institutions. “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 December 31, 2019.”
To boost liquidity, it wants “appropriate directions may be issued to all banks and non-banking financial companies (NBFCs), including HFCs, to institute a scheme to permit additional credit equal to 20 percent of existing real estate project-related advances with no additional security, if need be by extending government guarantees, without the classification of the project as a non-performing asset (NPA).”
It has also suggested that penal interest charged by banks and financial institutions should be suspended for a period of one-year or until such time as it takes for the pandemic to abate.
Steps should also be taken to control cartelisation of raw material for construction, CREDAI said. “Across various states, there has been an increase of Rs 100-250 per bag of cement and about Rs 2,000-2,500 per tonne of steel. This will lead to increase in construction costs and will have a cascading effect on homebuyers.”
On the issue of Goods & Service Tax (GST), the builders’ body comprising more than 15,000 members said the current regime provides a rate of 1 percent for affordable housing (those costing Rs 45 lakh). It wants the benefit to be extended to units costing up to Rs 75 lakh in metros.
It pointed out that the 5 percent GST rate for under-construction residential housing is acting as a deterrent for sale since there is no GST on completed units.Follow our full coverage of the coronavirus pandemic here.