Deepak Parekh asks RBI to raise priority sector housing loan limit

Written by ENS Economic Bureau | New Delhi | Updated: Jun 20 2014, 13:43pm hrs
Deepak ParekhDeepak Parekh, chairman, HDFC, says affordable housing is the need of the hour.
Calling affordable housing the need of the hour, Deepak Parekh, chairman, Housing Development Finance Corporation Ltd (HDFC), has asked the Reserve Bank of India to increase the limit of priority sector housing loans from the current cap of Rs 25 lakh to at least Rs 40 lakh.

RBI would do well to recognise that priority sector housing loans up to Rs 25 lakh in metropolitan cities and Rs 15 lakh in other centres is unrealistic when inflationary and other cost escalation factors are considered. Priority sector housing loans should be increased to at least Rs 40 lakh per unit, said Parekh in his Annual Report address to HDFC shareholders. The AGM is scheduled for July 21.

Sensitive to the concerns of the real estate industry and the problems they face, Parekh not only called for an online single window clearance mechanism for affordable housing projects, but also proposed to ease the source of funding for purchase of land by developers. While the regulation does not allow banks and HFCs to fund developers for acquiring land, Parekh said that this leads them to resort to high cost funding (18-22 per cent) from NBFCs, private equity or even the informal sector.

If regulators feel there is excessive speculation in real estate, it is prudent to prohibit banks and HFCs from lending for land transactions. However, when there is no real estate bubble, as is currently the case, then banks and HFCs should be allowed to fund land transactions, he said, adding that land cost comprises almost 70 to 80 per cent of total cost.

Industry experts feel that the proposals are very important for the sector. The definition of affordability in most of the cities has changed and it will help if RBI revises its limit. Also allowing banks and HFCs to fund for land purchase will bring down the cost of the project and the unit cost, said Anshuman Magazine, CMD, CB Richard Ellis.

Parekh also urged the developers to stop focussing on high-end luxury segment and focus on developing houses in the price range of Rs 15 to Rs 40 lakh. He took note of the tough environment India Inc faced over the last year as he termed FY14 as Perhaps one of the most difficult years in recent times. He, however, enthused optimism and said the worst is behind us as he laid down key issues that the new government needs to focus upon.

Gagan Banga, MD & CEO Indiabulls Housing Finance, said, To curb real estate prices it is essential to increase supply. If organised players can supply more capital to the sector, it will help add supply rather than creating real estate bubble. I fully endorse the proposals.