The Reserve Bank’s (RBI) proposed norms for under construction projects could delay sanctioning of loans to property developers and lead to increase in borrowing rates for them, top property developers and consultants said.
RBI, last week, proposed that banks should provision up to 5% of the loan amount during under construction phase with adjustments as the project progresses.
There could be increase of 100 to 150 basis points in the borrowing rates of property developers, said Vishal Srivastava, executive director at Anarock Capital which helps developers raise debt.
“Earlier, the standard asset provisioning was 0.4%. If it is taken to 5%, banks have to earn that much more from the customers. They have to increase the rates,” Srivastava said.
Developers such as Sanjay Dutt, managing director at Tata Realty & Infrastructure, believe there could be temporary delay of sanctioning of loans if the norms are implemented.
“There is no issue for credible developers with AA rating and above. Banks have already taken a call on them. Tier II and III developers could face challenges,” Dutt said.
Top developers get construction finance below 9%, good 1 to 2% lower than what they used to get a year ago. However, Dutt said there could be marginal increase in rates for developers if norms are implemented due to tight liquidity conditions now. He pegs it between 10 to 30 basis points.
“Once liquidity improves in the banking system, rates will be normal,” he said.
Dhaval Ajmera, director at Mumbai based Ajmera Realty & Infrastructure, said the move would lead to costs loaded on construction finance to developers who would pass it on to buyers.
“If the provisioning goes up by 10 times, it will lead to higher rates to developers who would pass it on to buyers ,” Ajmera said.
Amit Bhagat, chief executive and managing director at ASK Property Fund, agreed. “Any incremental increase will add to cost and passed on to developers.”
Ajmera said the real estate should not be included in the same bucket as infrastructure and others.
“In construction finance, NPAs are one of the lowest. There is no need to make any additional provisioning,” he said.
Sunil Pareek, executive director and Chief investment Officer at Assetz Property Group said the increase in rates would not impact much in the current context when residential sales are booming.
“Since sales are high, there is less takers for construction finance. Even if there in increase in rates, developers would absorb it,” Pareek said
Residential sales have risen 14% in Q1 of the current calendar year in top 7 cities, according to Anarock Property Consultants.