The National Real Estate Development Council (Naredco) along with the Confederation of Real Estate Developers’ Associations of India (Credai) has formally approached the Government, requesting an easing of foreign direct investment and external commercial borrowing norms. Additionally, they seek a policy reform aimed at rescheduling term or construction loans to ensure the smooth roll-over of existing debts. This request also comes against the backdrop of China's recent commitment to invest approximately $586 billion in infrastructure and consumption projects, which include low-cost housing initiatives.
In a letter directed to the Prime Minister, Credai highlighted the acute credit squeeze currently gripping the sector, which is forcing numerous ongoing projects to a near standstill amid an "extremely negative sentiment in the market." Credai stated, "Capital of both developers and funds have significantly eroded with crashing valuations. Developers and funds are unable to raise loans from external sources to finance completion of ongoing projects due to ECB and other restrictions on real estate development."
The organization emphasized the urgent need to establish a clear definition of ‘affordable housing’ and advocated for modifications to FDI and ECB regulations to promote investment in this critical area. According to existing regulations, 100% FDI is allowed in construction development projects, including those for housing, commercial properties, and resorts, yet it is contingent upon minimum capitalization and designated land area for development. Credai further stated, "The limits of 50,000 square meters or 25 acres could be relaxed for this sector."
Furthermore, it has been suggested that external commercial borrowings (ECBs) should be permitted specifically for real estate to aid in the completion of ongoing projects where equity already exists in the form of FDI. At present, the use of ECBs for real estate development is prohibited. Naredco’s Director-General, Brig. (Retd.) R.R. Singh, commented, "The monetary policies of the RBI regarding real estate projects and home loans by Indian banks, the closure of ECBs, and the rising interest rates, along with a stock market crash, have led to a situation where credit has dried up. Buyers are hesitant to invest, despite a strong demand in the market."
Naredco has also recommended that in instances where land has been acquired from government bodies, financial institutions should be permitted to finance not only construction costs but also the land costs. Since October, the RBI has implemented reductions across several benchmark rates, which encompass both the cash reserve ratio and the statutory liquidity ratio, as well as the repo rate, to enable banks to unlock funds and foster a low-interest rate environment. Yet, continuous negative news from the real estate sector does not appear to be abating. A recent report from Cushman & Wakefield indicated a notable decrease in retail rentals, dropping by as much as 20% in the third quarter concluding September 2008, as retailers cautiously reassess their expansion strategies.