Real estate woes: Important to permit one-time recast of certain loans, says HDFC chairman

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Published: November 7, 2019 3:45:34 AM

Parekh argued that if these restructured accounts are considered as standard assets for a period of about 12 months, lenders will stop being so diffident.

HDFC chairman, Deepak Parekh, NPA, REIT, financial markets, real estate loans, India Mortgage Leadership ConclaveParekh said there are developers who genuinely need last-mile funding.

HDFC chairman Deepak Parekh on Wednesday said the crisis of confidence in lending to the real estate sector can be overcome if lenders are allowed a one-time restructuring of certain real estate loans – particularly for stuck projects where building approvals have been delayed. Parekh was delivering a speech at the India Mortgage Leadership Conclave.

Parekh argued that if these restructured accounts are considered as standard assets for a period of about 12 months, lenders will stop being so diffident. “This is not a new suggestion. An exceptional regulatory treatment was permitted by the RBI in 2008, which helped revive sentiment. This in itself would enable last-mile funding even to assets that have slipped owing to tight funding conditions and ensure that these projects are completed,” he said.

Parekh accepted that such a step may lead to arguments about it being akin to kicking non-performing assets (NPA) down the road again. “But my stance is that real estate loans are different. The value of the land is always there. Delays in granting building approvals is not always in the hands of the developer and we still don’t have a single window mechanism for such approvals,” he said.

Parekh said there are developers who genuinely need last-mile funding. “Many are being denied their rightful funding in an environment that has become wary of lending to the sector. At a time like this, one can’t afford to end up in a situation where oxygen is cut-off for even the stronger developers. This could happen if the risk averseness prolongs, he said.

On his outlook about the sector, Parekh said a formalised rental market will reduce the skew as more vacant homes will get occupied. “Housing is going to get more niche. For instance, in the recent period, student housing is gaining traction. It is estimated that currently only one in five students enrolled in higher education is fortunate to get accommodation in an institutional set-up, leaving most students to seek alternatives like rental accommodation. Real estate investors are finding that student housing can offer good returns on investments,” he said.

Parekh is optimistic about real estate investment trusts (REITs) emerging as a preferred alternative investment avenue with estimates indicating that nearly $20-25 billion could be raised by commercial real estate developers over three-four years.

Parekh believes that the laws of financial markets are such that one player never gets stronger at the cost of another’s failure. “It is always a rising tide that lifts all boats. And one entity’s downfall always has contagion effects. We have gone through an unusually difficult phase, but this too will pass.”

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