Housing Development Finance Corporation Limited (HDFC Ltd.) Chairman Deepak Parekh has proposed a one-time restructuring for real estate loans to revive the sector and speed up the completion of halted projects.

Proposal for Restructuring of Real Estate Loans

The proposal made to shareholders in the mortgage financier's annual report for fiscal 2019-20, for the restructuring of loans, easing of external commercial borrowing rules and immediate changes to the regulations to allow the end-to-end execution of online housing loans.

The RBI permit is needed for a one-time restructuring for real estate loans. This has been a long-standing request and a measure implemented in the past to revive the sector. Approving for a restructuring of these loans and categorising them as standard assets will facilitate last-mile funding for stalled projects of real estate developers.

At this unprecedented time, a constructive process is required to tackle financial stress in the real estate sector without bail-out packages. Allowing the problems to grow will lead to a rise in non-performing loans, which, in turn, would weaken the overall financial industry.  

To improve the sector, the real estate prices should be made realistic to reflect current market realities, as this can help developers to unload their unsold inventory and improve their cash flow. At the same time, to provide the realignment of ready reckoner rates as well.

The Reserve Bank of India (RBI) was admired for its stance on allowing interest to be charged on loans under moratorium. It has been at the forefront, shouldering a huge burden to maintain financial stability.

The plan was developed for a level playing field among NBFCs and housing finance companies to raise funds through the External Commercial Borrowings (ECBs). At present, Housing finance companies can only raise ECBs under affordable housing, where the housing project must have at least 50 percent of the floor space index for housing units with a carpet area not exceeding 60 square metres. 

This concept is in accordance with the government's main goal of allowing more individuals to become homeowners. The government should enhance its budget promise to ease the ECB 's standards for housing finance companies.

However, this one-time real estate loan restructuring would spark a hope that the stressed real estate sector will make a faster come-back.

By: Shailaja K