In a bid to spur real estate players to build homes for the low-income population, the proposal to allow them to access end-use linked external commercial borrowings (ECBs) for low-cost housing will soon be implemented. According to a senior government official, ?the Reserve Bank of India (RBI) is going to notify the scheme in a few days?.
The scheme would impose stiff end-use norms to ensure that overseas funds are not used by developers for other purposes. ECBs are much cheaper than local debt due to near zero interest rates in many developed countries. But the actual interest rate would depend upon the lenders? assessment of the borrowers, economic viability of projects, expected returns and the credit rating of the borrower.
For a AAA rated company, ECBs could be cheaper by almost 300 basis points as compared to the local debt. It is understood that ECBs will be routed through the National Housing Bank (NHB), to ensure correct and appropriate end-use. Navin Raheja, CMD of Raheja Developers and chairman, National Real Estate Development Council, said the move would open up another avenue of credit at cheaper rates for the developers.
In the Union Budget 2012, former Finance Minister Pranab Mukherjee proposed to allow ECBs for low-cost affordable housing projects, in order to address the problem of the shortage of housing for low income groups in major cities and towns. At present, the real estate sector, in general, is not permitted to go in for ECBs.
?Taking cognizance of the urgent need of the proposal, finance ministry and Ministry of Housing and Urban Poverty Alleviation (HUPA) also had a meeting regarding faster notification and implementation of allowing ECB for low cost affordable housing,? the official added.
The proposal may not help the real estate sector as a whole since low cost housing is not the mainstay for majority of the developers, said Samir Jasuja, founder & CEO at PropEquity, a real estate data, analytics and intelligence firm.