Greenfield housing projects will soon come under a new rating system being developed jointly by mortgage regulator National Housing Bank and Indian Banks’ Association. The rating is aimed at encouraging lenders to give loans at concessional rates to individuals buying units in projects rated highly by NHB-IBA. This will prompt builders to get their projects rated. As an incentive for builders and lenders, the regulators, including the RBI and NHB, may consider regulatory forbearance or concessions to rated projects through lower risk weightage and lower provisioning as compared to unrated projects, sources privy to the development said.
The move comes as part of efforts to stimulate demand in a slowing economy, where growth rate has fallen below 5% in the last two years from 8.9% in 2010-11.
A report on a housing project-specific rating system was recently submitted to the finance ministry by a panel of experts from NHB, IBA, the housing industry and rating agencies, NHB chairman and managing director RV Verma told FE.
While the R52,000-crore mortgage industry is growing at a brisk 18-19%, the new system will lower costs for builders and buyers, prevent inventory pile-up and speed up new projects.
“Now there is no problem with the demand side as buyers are getting loans at good rates. The supply side has been a big bottleneck. The new rating system will bring about a paradigm shift to ensure good supply mechanics,” Verma said.
The new rating system will be different from the existing Credai and Crisil ratings, which have a builder-specific rating system and are not project-specific. However, one disadvantage of this system is that builders who are less known, but building good projects, may not get a good rating.
The present rating particularly affects the affordable housing segment, where a number of good middle-level builders are coming in. These builders are dependent on funding from the financial sector, but do not have easy access to credit. Big names such as DLF, Ansals, Unitech and Hiranandanis have lots of funds of their own.
A study commissioned under NHB-World Bank assistance had found that many middle-level builders are coming in to fill the space left by big names in the affordable housing segment, where units costs are below R15 lakh. These units are located in the periphery of metros, suburbs, Tier-2 and Tier-3 cities, for which there is good demand. “Though risk is very low and price is affordable, they do not get good ratings,” Verma said.
While the new rating system will cover greenfield projects initially, NHB and IBA may consider ongoing projects.
The rating will not be mandatory, but will be incentive-based and demand-driven. The rating is on a scale of 1-7. It will include a technical appraisal related to land acquisition, title, possession, approvals, planning, pricing, project viability on a standalone basis and the financial position of promoters. The escrow mechanism, where cash flows of the project will be kept aside, will also be considered during the rating. Also assessed will be the financial strength of the promoter and the project, technical and technological due diligence and market due diligence. All the risks associated with lending get mitigated. The rating will uniformly be advocated to the banks and lenders, including HFCs.