Ministry Urges Indian Real Estate Developers to Embrace Bank Financing for Growth

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    New Delhi: The Ministry of Housing and Urban Affairs has called upon real estate developers in India to shift their focus towards financing from the banking system instead of relying heavily on homeowners’ investments. This announcement was made by Manoj Joshi, Secretary of the ministry, during his speech at the CII Annual Conclave on Indian Real Estate 2023. Joshi emphasized the necessity of establishing a credible framework that can effectively distinguish between good and bad projects, allowing the sector to access capital from banks.

    Joshi expressed concern over the current financing structure, which sees contractors and vendors primarily relying on advances from government clients or developers themselves. This dependency leads to a shortage of working capital throughout the supply chain, resulting in project delays, increased costs, inefficiencies, and extended completion timelines. To prevent hindrances to economic growth, Joshi stressed the importance of providing adequate capital to this crucial segment of the real estate sector.

    Recognizing instances of misconduct within the industry, Joshi highlighted the cautious approach of the banking sector towards real estate investments. He suggested that a market-based borrowing system could effectively differentiate between reliable and unreliable borrowers. However, the prevalence of public sector-based banking has led to a general apprehension in financing the real estate sector due to the difficulty in distinguishing between the two.

    To address this challenge, Joshi called for the development of a credible framework, such as a rating system, which would enable banks to effectively differentiate between good and bad projects and provide access to capital accordingly. Furthermore, Joshi discussed the need to establish efficient payment systems within government bodies like the Central Public Works Department (CPWD) and the National Buildings Construction Corporation (NBCC). The government is exploring the possibility of providing direct funds to vendors to streamline the payment process.

    Highlighting the significance of Real Estate Regulatory Authorities (RERAs), Joshi emphasized their role in ensuring the timely delivery of homes to consumers. He also stressed the need for banking systems to offer financing options that enable developers to expedite construction and fulfill their promises of timely delivery.

    Industry experts predict that the Indian real estate sector will witness an increased demand for affordable, low-cost housing units. Neel Raheja, Chairman of the CII National Committee on Real Estate and Housing, noted that growth in the sector will be driven by services such as BPO, high-end technology work, pharmaceuticals, and data centers.

    Additionally, experts acknowledged the positive impact of reforms such as the Real Estate Regulatory Authority (RERA), Goods and Services Tax (GST), Real Estate Investment Trusts (REITs) framework, and the digitization of land records on the growth of the real estate sector.

    The Ministry of Housing and Urban Affairs also emphasized the need for urban planning to evolve in Tier 2 and Tier 3 cities, highlighting it as a priority area requiring the government’s attention.

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