The real estate sector has been significantly impacted by tight liquidity and escalating interest rates. The Reserve Bank of India’s (RBI) policy has discouraged banks from extending loans to developers, resulting in a drastic decline in fund flow to the sector. This trend may ultimately lead to the closure of several units.
Pradip Jain, the CMD of Parsvnath Developers, articulates that the construction industry, the second-largest employment generator in the nation, is undergoing immense challenges due to prevailing government policies. He urges a revision in policy that would allow funds to flow at lower interest rates, enabling more people to purchase homes. Jain advocates for banks to lend directly to developers, helping them maintain their construction schedules. He asserts that such measures are vital for navigating the current crisis while also safeguarding the livelihoods of countless construction laborers. Builders and developers concur, asserting that home loan interest rates should be lowered to below 10% from the current 13% to improve affordability for end users.
Since the onset of the global financial crisis, banks have been hesitant to approve home loans, pushing floating rates up to 13%, which has adversely affected buyers’ affordability. Over a span of four years, the equated monthly installment (EMI) for a consistent loan amount has surged nearly 50%, attributable to the rise in interest rates from 7% to 13%. A prominent developer expresses that the current predicament began after the government and RBI perceived the real estate sector as a speculation arena. He opines that instead of seeking solutions to the market crisis, authorities have opted to undermine the sector by discouraging banks from granting loans to developers.
Sanjiv Srivastava, CMD of Assotech, points out the sector's crucial role in the robust growth of emerging economies like IT, BPO, and retail by providing them with modern buildings and amenities that cater to contemporary needs. It is worth noting that such economic growth primarily occurred in cities where superior realty development took precedence. In the National Capital Region (NCR), for instance, the initiation of realty development in Gurgaon heralded its emergence as a hub for IT and BPO centers. Subsequently, organized retail in the form of malls thrived in Gurgaon, paving the way for a similar pattern of quality construction in Noida, which attracted new economic pursuits to that suburb.