Union Minister Nitin Gadkari (Image: Reuters)
The real estate sector could take a leaf out of infrastructure sector that is exploring the possibility of loan financing for a period of 30 years. It could consider extending the term of housing loans to 20 years to tide over the liquidity crisis faced by it during COVID-19, Union Road Transport and Highways Minister Nitin Gadkari said at a webinar organised by Naredco.
He offered several suggestions ranging from business expansion in rural areas to diversification in road construction to setting up housing finance companies.
“We have to fight the war against corona and also fight an economic battle. The sector was not in good health even before corona. For infrastructure sector, I have requested RBI for a 30 year loan for road construction. Housing loans should be similarly extended for 20 years. This will help spur demand. Increase the duration of a housing loan to 20 years. This would reduce EMI and also increase demand. There is ready stock available right now but there are no buyers,” he said.
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In January this year, Gadkari had said that he had requested RBI Governor Shaktikanta Das to allow infrastructure loan financing for 30 years to encourage investment in the infrastructure sector. Construction companies have been facing difficulties in procuring long-term loans due to the economic slowdown and delays in land acquisition for projects. Companies may also be facing hurdles due to delay in awarding new projects.
He also asked realtors to sell unsold housing units, even at no-profit-no-loss, to boost liquidity.
"Don't be greedy. You will not get a premium price. Whatever price you are getting, sell your properties to boost liquidity and move forward," he said, adding that there are some realtors who are clearing unsold stocks and waiting for prices to increase to Rs 35,000-40,000 per sq ft.
"They are committing mistakes. Interest cost to banks, financial institutions and private lenders are increasing…The developers should negotiate prices with prospective customers and even sell at no-profit-no-loss to avoid huge interest costs,” Gadkari said.
He exhorted the real estate sector to start thinking out-of-the box. He said real estate companies could consider establishing their own housing finance companies to give loans to customers at lower rates and not be fully dependent on banks.
“There is a need to strengthen non-banking finance companies (NBFCs) through equity infusion from the government and private players,” he said.
The NBFCs should tap funds from international markets at lower rates. The real estate sector could also look at creating a fund where foreign fund could be hedged by RBI to provide loans at 5 percent to 6 percent interest.
He asked the sector to seriously consider construction activity in industrial clusters, smart cities and smart villages being proposed along highways.
The government is looking into the possibility of building smart cities along the Delhi-Mumbai Express Highway that is being built on a new alignment, Gadkari said, adding a final decision in this regard is yet to be taken by the Finance Ministry and the Prime Minister's Office.
"The government is looking if NHAI can plan a township along the highway (Delhi-Mumbai Expressway) ... a Cabinet note has been floated for this," he said.
Gadkari also told builders to expand their businesses in small towns and villages with affordable housing projects below Rs 10 lakh and not only focus on big cities.
He said there are opportunities in his ministry and asked developers to diversify into logistic parks and road construction where precast technologies were being used.
Gadkari said his ministry is developing bus depots, petrol pumps, hotels, restaurants and rail over-bridges along the highways where real estate companies could participate. There are also plans to develop townships along Mumbai-Delhi corridor.
As for unsold inventory, he asked Naredco to approach the Central and the state government with a scheme wherein the government could buy up their unsold inventory for their employees.
The cost of construction also needs to come down. “This could be done by focusing on best practices and new technologies to reduce costs,” he said.
Gadkari also said that the real estate sector could focus on bulk production to reduce costs.
“Create construction clusters for mass production of furniture to electric lights, fans to storage systems, paints to hardware. This would lead to large scale manufacturing. This would help you bring down construction costs considerably,” he told the realtors.Follow our full coverage of the coronavirus outbreak here