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Cash-strapped affordable housing sector is likely to get a shot in the arm with a high-level committee on External Commercial Borrowings allowing housing financing companies to raise funds.
In Budget 2012, the Finance Minister, in view of the shortage of housing for low-income groups in major cities and towns, had proposed to allow ECB for low-cost affordable housing projects.
The real estate sector, in general, is not permitted to go in for ECBs.
The Committee on Wednesday also permitted foreign institutional investors to invest up to $5 billion in rupee bonds within the overall corporate bond limit of $45 billion.
ECBs are considered attractive as the cost of loans is lower than that of domestic borrowings. Besides, they provide an additional avenue to access large amounts of funds from global financial markets.
Facing a shortage
This decision to allow National Housing Bank and housing finance companies raise ECBs comes in the backdrop of shortage of housing for low-income groups in major cities and towns.
While most real-estate players welcomed the move, many said that the ECB route may not be the best as the cost of funds will not be cheap because of the international economic situation.
A Technical Group constituted by the Ministry of Housing and Urban Poverty Alleviation had estimated urban housing shortage at the beginning of the Eleventh Plan (2007-08) at 24.71 million households in 2007, which it projected to increase to 26.53 million by the end of the Plan (2011-12).
Manoj Goyal, Senior Vice-President, Raheja Developer, said: “ECB will help the developer get finance at cheaper rates and will result into low financing cost and ultimately low cost of construction.”
The Centre has also been looking at raising the cost ceiling for subsidy (capital assistance) under affordable housing.
According to CREDAI, the current size of the real estate industry is estimated to be about $180 billion with an annual CAGR (compounded annual growth rate) of 18-20 per cent.
Anuj Goel, Executive Director, KDP Infrastructure, a company which is into affordable housing segment, said, “ECB is cheaper than local loans and in the affordable housing segment, where profit margins are very low, it is bound to give advantage to developers.
“It will ease the credit situation in the affordable segment as borrowers who have a good credit rating would be able to procure loans that would be cheaper by almost 200-300 basis points as compared to the local debt.”
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