RBI eases reserve norms for banks issuing infra bonds

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MUMBAI, 15th July 2014: The Reserve Bank of India, in order to encourage infrastructure development and affordable housing, on Tuesday, exempted long-term bonds from the mandatory regulatory norms such as the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR) and Priority Sector Lending (PSL) if the money raised is used for funding of such projects.

“Banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to (i) long-term projects in infrastructure sub-sectors, and (ii) affordable housing,” the RBI said.

The RBI said that apart from what is technically defined as infrastructure, affordable housing is another segment of the economy which requires long-term funding. The central bank said it intends to “ease the way for banks to raise long term resources to finance their long term loans to infrastructure as well as affordable housing.’’ The instructions are in pursuance of Finance Minister Arun Jaitley’s budget speech in which he had said “banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes known as the 5/25 structure.’’

5/25 structure
Under the 5/25 structure, bank may fix longer amortisation period for loans to projects in infrastructure and core industries sectors, say 25 years, with periodic refinancing, say every five years. The RBI issued instructions to banks specifying operational guidelines and incentives in the form of flexibility in loan structuring and refinancing. It granted exemptions from regulatory pre-emptions, such as, the CRR, the SLR and Priority Sector Lending (PSL). As per RBI regulations, banks are required to keep a portion of deposits as CRR with the central bank and park certain portion in government securities known as SLR.

Mitigating ALM problems
“The objective of these instructions is to mitigate the Asset-Liability Management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors, and also to ease the raising of long term resources for project loans to infrastructure and affordable housing sectors” it said. Banks have been seeking permission for longer tenor amortisation of the loan, say 25 years, with periodic refinancing of balance debt, the RBI said. It further said rupee denominated bonds should be issued in ‘plain vanilla form’ without call or put option with a fixed or floating rate of interest.

Lending for affordable housing means loans eligible under the priority sector, and loans up to Rs.50 lakh to individuals for houses costing up to Rs.65 lakh located in the six metropolitan centres. For other areas, it covers loans of Rs.40 lakh for houses with values up to Rs.50 lakh.

Long gestation period
The RBI said that while banks have been raising resources in a significant way, issuance of long-term bonds for funding loans to infrastructure sector has not picked up at all. Infrastructure and core industries projects are characterised by long gestation periods and large capital investments. The long maturities of such project loans consist of the initial construction period and the economic life of the asset/underlying concession period (usually 25-30 years). India is looking at investing $1 trillion in infrastructure development by 2017, half of which is expected to come from the private sector.

PTI reports from Delhi:

Realtors hail move
Realtors’ body CREDAI, on Tuesday, hailed the RBI’s move to ease norms for banks to raise long-term funds for financing affordable housing, saying this would lead to cheaper credit for such projects.

“It is a welcome step. This will lead to lower interest rates for affordable housing projects,” CREDAI Chairman Lalit Jain said.

Another realtors’ body NAREDCO Chairman Navin Raheja said this would help developers to mobilise cheaper finance for development of affordable housing and will result into cutting in prices of housing in long term. “It is expected that the home loan rates may also come down because of this move,” Mr. Raheja said.

Mr. Jain of Credai demanded that the housing sector should be given the infrastructure status and felt that Pune, Ahmedabad and Lucknow should have figured in the list of metropolitan cities.

Source: The Hindu

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Realtors hail RBI move to ease norms for affordable housing

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NEW DELHI, 15th July 2014: Realtors’ body CREDAI today hailed the RBI’s move to ease norms for banks to raise long term funds for financing affordable housing, saying this will lead to cheaper credit for such projects. In order to encourage infrastructure development and affordable housing, RBI today exempted long term bonds from mandatory regulatory norms like CRR and SLR if the money raised is used for funding of such projects.

“It is a welcome step. This will lead to lower interest rates for affordable housing projects,” CREDAI Chairman Lalit Jain said.

Another realtors’ body NAREDCO Chairman Navin Raheja said this will help developers to mobilise cheaper finance for development of affordable housing and will result into cutting in prices of housing in long term. “It is expected that the home loan rates may also come down because of this move,” Raheja said.

Jain of Credai demanded that the housing sector should be given infrastructure status and felt that Pune, Ahmedabad and Lucknow should have figured in the list of metropolitan cities.

RBI said that lending for affordable housing means loans eligible under priority sector, and loans up to Rs 50 lakh to individuals for houses costing up to Rs 65 lakh located in the six metropolitan centres– Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad. For other areas, it covers loans of Rs 40 lakh for houses with values up to Rs 50 lakh. The central bank said it intends to “ease the way for banks to raise long term resources to finance their long term loans to infrastructure as well as affordable housing”.

Source: The Economic Times

Experts’ speak: Why are smart cities important?

Mr. Navin Raheja, CMD Raheja Developers Ltd.

Magicbricks.com Bureau, 17th July 2014: Modi’s dream project is building 100 Smart Cities across the country and the 2014 Budget has laid out a roadmap by providing the fund of Rs 7,060 crore? But what are these smart cities? Are they good investment options? Magicbricks asks the experts.

In his Budget-day speech, the Finance Minister Arun Jaitley said that the Smart Cities will be developed as satellite towns of larger cities and by modernizing the existing mid-sized cities.

Apart from the allocation of Rs 7,060 crore Magicbricks reveals the other key steps aimed at encouraging the development of Smart Cities and their impact on the Property Market. These include, requirement of built-up area being reduced from 50,000 sq. m to 20,000 sq. m and capital conditions for FDI that have been brought down from USD10 million to USD 5 million, with just a three year post-completion lock-in period.

What are Smart Cities?

So will these Smart Cities be planned on the same lines as upcoming cities, such as Lavasa, Auroville and Pallava?” asked Magicbricks. “Cities like Lavasa are not considered home for lower or middle-class income groups but are targeted towards the upper middle class. The government is keen on focusing housing for all and that can be possible only through affordable housing.” replied Dr. PR Swarup, director general, Construction Industry Development Council (CIDC), at the `Magicbricks Budget Discussion on Real Estate & Urban Infrastructure’ organized by Magicbricks recently. But are these efforts enough to convert this vision into a reality? Is this enough? Magicbricks asked real estate experts to find out. “The seed has been sown, the vision is bang-on, the intent is there and it is a welcome move. But the actual question is how and when will this be implemented,” added Dr. Swarup. Speaking to Magicbricks he added “The allocated money is just like ‘token money’. The amount translates into a meager Rs. 70 crore per city, which is not enough to develop one whole city. The blueprint of this dream is still in the pipeline. Identification, time-lining and definition of the concept still remain to be executed. There is also a question mark on how they will provide 24×7 water and electricity, transit, jobs, etc.”

Why Smart Cities?

Magicbricks data clearly shows that development in the country is city-centric and is thus, making a large number of people migrate to the fast-developing cities. The Finance Minister substantiated this fact when he stated, “The pace of migration from the rural areas to the cities is increasing. A neo-middle class is emerging which has the aspiration of better living standards. Unless new cities are developed to accommodate the burgeoning number of people, the existing cities would soon become unlivable.”

Impact of Smart Cities on real estate

Speaking to Magicbricks, experts were upbeat about the impact this decision would have on real estate and on infrastructure across the country. Navin Raheja, chairman, National Real Estate Development Council (Naredco), said, “With the Smart Cities project, there will be a surplus of land issued for urban development and housing. This will ensure that with more supply, the prices of property are reined in.” Raheja also pointed out to Magicbricks that because of lack of regular planning and small-term perspectives, land utilization is sub-optimal. By freeing up land for planned urban development and long 50-year term plans, cities can continually regenerate themselves and adapt to changing demographics. 

V Suresh, principal executive officer, HIRCO, added to the Magicbricks discussion, that Smart Cities should boast of good infrastructure, well-maintained drainage and sewerage facilities, good connectivity and more.

What else does the real estate sector gain from the Budget?

Discussing the impact of the Budget 2014 on the Indian real estate market, the Magicbricks discussion panelists unanimously agreed that the Budget was a positive move towards reviving consumer sentiments in the real estate sector. Vaibhav Sankla, director, H&R Block India Private Limited said that the additional incentive on home loan and the tax rebate is comforting to the business community and the tax payers. “The housing loan rebate raised from Rs 1.5 lakh to Rs 2 lakh may also boost youngsters to buy homes,” he said. Speaking to Magicbricks, Partner and Head Real Estate and Construction, KPMG India, Neeraj Bansal said, “Accepting the modified version of the Real Estate Investment Trusts (REITs) was also felt to be another positive move. “It will help in easing liquidity requirement for developers, paving the way to raise easy capital and also provide access to retail investors to benefit from regular income and appreciation benefits from the real estate.” “Overall the government’s commitment to boost the real estate sector seems to be well intentioned. The idea to create Smart Cities was welcomed, but it is still to be seen how this vision of PM Narendra Modi will get off the ground.” summarized Jayashree Kurup, Head of Magicbricks Research and Content. 

Source: The Economic Times

Indian realty has taken the high ground

Raheja Atharva

15th July 2014: India’s construction sector plays a key role in underpinning the Indian economy. The real estate sector directly employs 10 million blue collar labour and indirectly, 10 million through services. 

Industry stakeholders believe that real estate will grow in India despite recession. “There is no slowdown in Indian real estate, there never can be one and there never will be one,” says Navin M Raheja, President, NAREDCO & CMD, Raheja Developers Limited.He attributes his optimism of the Indian real estate industry to the demand supply gap in housing (15 million units plus) and the growing aspiration of the new-age Indian buyer. Home today has been redefined from a living space that takes care of just functional needs to one that caters to higher order needs and desires of individuals. Often it is an extension of one’s personality – intimate, comfortable and exclusive. The economic boom in India over the last 20 years has led to tremendous wealth creation – resulting in new breed of entrepreneurs joining the exclusive ranks of traditional business families. Both have been catapulted to a higher quality of life. The new Indian is both affluent and aspirational — he demands a living space that comes with the promise of an exclusive lifestyle. Each project continuously raises the bar of superior living, pushing the envelope on design, architecture and construction and amenities.

As urbanization is on the rise -the number of urban agglomerations has increased from 384 in 2001 to 475 in 2011, a decadal increase of 23.7%. Urbanization creates demand for spaces to live and work – those which are safe and energy efficient with technological innovations. In a growing economy like India, it is only natural that there would be challenges on every count, be it regulatory, safety or manpower. Real estate is an asset class that demands specialised skills and the complexity surrounding this sector increases in the Indian context. Despite being the second largest employer in the country, the construction sector as a whole faces manpower shortage. Further, the sector is heavily dependent on manual labour, faces longer time lines for construction completions, which results in supply getting deferred. Hence, technologically, faster and alternative methods of construction need to be adopted on a large scale, so special training for certain skills would also need to be imparted.

Says Lalit Kumar Jain, Chairman, Credai, “The skill development programme is not happening at a pace and has not reached the depth. The quality of service providers is poor. It is difficult to get the required skill set to do the simple yet complicated jobs such as electrical, plumbing, waterproofing, etc.” 

Absence of quality of labour as well as service providers is a serious concern for most builders. The professional approach is missing and commitment to fulfill promises is conspicuous by its absence. One of the greatest challenges in designing buildings is in creating amenities and functionality of spaces and that too on time. That is the reason why global leaders in these fields are roped in to get the best methods, processes, technologies, building material and expertise. 
The growth of high-rise buildings in India has gone up for many practical reasons and with growing purchasing power Indian consumers are opting for it for a better quality of life. 

Source: The Economics Times

 

Home loan rates up to Rs 50 lakh to dip as RBI eases bank fund-raising norms

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Mumbai 16th July 2014: Housing loans of up to Rs 50 lakh could become cheaper with the Reserve Bank of India relaxing the rules for banks to offer loans for the sector.

Taking forward the announcement made in Budget 2014-15 to encourage infrastructure investment, RBI has permitted banks to raise long-term soft funds from the market to finance such loans. The loans will, however, not be applicable to builders. An RBI circular, issued on Tuesday, noted, “housing loans to individuals up to Rs 50 lakh for houses of values up to Rs 65 lakh” in the six metropolitan centres will get the concession. In other cities the upper limit will be Rs 40 lakh for houses of values up to Rs 50 lakh. It added that “RBI will periodically review the definition of affordable housing on account of inflation”.

Banks had been resisting giving out large and long-term loans for infrastructure sectors including housing as they do not raise long-term finance. The RBI circular has now permitted the banks to raise such funds without being hobbled by restrictive conditions like fulfillment of investing part of the money so raised in safe government securities. The banks can lend the money to people who walk in for home loans into their banks at attractive rates from now. The BJP manifesto promised low cost housing to all by 2022.

The RBI has made it clear that its regulatory forbearance “will be restricted to the bonds that are used to incrementally finance long-term projects in infrastructure and loans for affordable housing”. The shortage of houses in urban India is estimated at close to 19 million as per National Housing Bank data. Another estimate says that it takes more than five year’s annual income to pay for a house in the non-metro cities. Thus, the available housing stock is priced mostly out of reach for even middle income housing groups.

The RBI circular says that those in the lowest income bracket, who are entitled to priority sector lending, will continue to get the support from the government and the banking sector, unchanged. Navin Raheja, chairman of Credai, the apex association of realtors, said, “Giving affordable housing infrastructure status will boast the housing sector in India. This will help developers to mobilise cheaper finance for development of affordable housing and will result into cutting in prices of housing in long term”. The RBI notification states that the seven-year bonds to be raised by banks must be issued in plain vanilla form without call or put option with a fixed or floating rate of interest. “The floating rate of interest should be referenced to market determined benchmark rates. The bonds may be issued through a public issue or private placement in full compliance with Sebi guidelines/norms including mandatory rating and listing,” it said.

In another notification to banks on flexible structuring of long-term project loans to infrastructure and core industries, the RBI also said its instructions do not come in the way of banks’ structuring long-term project financing products if the prudential and regulatory framework is meticulously observed while structuring such products. This means banks are free to project loans with long maturities of 25-30 years. “In order to ensure stress free repayment of such long gestation loans, their repayment tenor should bear some correspondence to the period when cash flows are generated by the asset,” it said. The RBI has not prescribed any ceiling or floor on repayment period of loans, except in the case of special regulatory treatment for asset classification on restructuring.

Banks have been representing to the RBI that they are unable to provide such long-tenor financing owing to asset-liability mismatch issues. To overcome the asset liability mismatch, they invariably restrict their finance to a maximum period of 12-15 years.

“It’s heartening to see the RBI encouraging financing for affordable housing, on par with infrastructure. This will generate a huge number of jobs in addition to homes for India’s aspirational citizens,” said Shailesh Pathak, executive director, Bhartiya Group.

Source: The Financial Express

 

Sops for sector to boost housing demand: Realty experts

Mr. Navin Raheja, CMD Raheja Developers Ltd.

New Delhi July 10, 2014: Hailing Budget proposals, realty developers and consultants today said the government’s move to give tax sops on home loans and investment trusts, and easing of FDI rules will boost housing demand and investment in the slowdown-hit real estate sector.

Country’s largest realty firm DLF Group Executive Director Rajeev Talwar said: “The finance minister must be complimented for presenting a very good budget that offers directional clarity and will surely kickstart the economy”. Measures like hike in rebate on interest paid on home loans to Rs 2 lakh, increase in limit under Section 80C to Rs Rs 1.5 lakh and a raise in personal income tax limit to Rs 2.5 lakh will surely spur people to invest in housing, he added. Talwar also noted that the budget has ended the ambiguity on the tax status of REITS (Real Estate Investment Trusts), paving the way for introduction of this instrument that would attract global funds to invest in the sector. Stating that the proposal of 100 smart cities is a big step towards urbanisation, Talwar assured “DLF will surely be a contributor and a partner in this mega initiative”.

Tata Housing MD and CEO Brotin Banerjee said the budget has introduced proposals that would help kick-start investment in the real estate sector. “The government’s move to provide necessary incentives to REIT’s and giving a tax pass-through status is a positive move as it will reduce the pressure on the banking system, avail fresh equity and attract long term finance from foreign as well as domestic sources,” Banerjee added.

Increasing the interest deduction to Rs 2 lakh would help more people to buy homes and this could trigger renewed interest in realty market, he said, adding that relaxation in FDI would boost foreign investment.

Unitech MD Sanjay Chandra said: “I am glad to see REITs becoming a reality in India finally. I hope SEBI will soon come out with detailed guidelines on REITs, so that realty companies can start taking benefit of this mode of financing. “REITs will also hopefully lead to large scale participation from retail investor community in the commercial real estate space,” Chandra added.

Describing budget as “half glass full and half filled with hopes”, realtors apex body CREDAI Chairman Lalit Kumar Jain said it met with some expectations and left some out. Jain welcomed the announcements on REIT and FDI but rued that infrastructure status to realty sector or industry status to housing were not accorded. 

Industry body NAREDCO Chairman Navin Raheja said change in FDI rules will help to get finance in small projects. “Clarity on tax treatment and promotion of REITs will open up new source of capitalfor crunched real estate thereby filliping the growth of the so called slowed down sector”.

CBRE South Asia Chairman and Managing Director Anshuman Magazine said: “The biggest announcement for the realty sector was SEBI being directed to introduce REITs in India. We expect the entry of this much-awaited investment instrument to provide alternative funding channels to the realty sector.

Source: Business Standard