After exporters, real estate players have demanded the priority sector tag for low cost housing.
"The RBI should expand its scope for 'priority lending,' to cover even lending to developers involved in low-cost and affordable housing as cheap funding is extremely critical for them to develop low cost housing projects," says a report by The Confederation of Real Estate Developers’ Associations of India (CREDAI) and Cushman & Wakefield.
The demand came just ahead of RBI's monetary review on Wednesday.
Meanwhile, lending to individuals for housing up to Rs 15 lakh already comes under priority sector. The real estate players want this to be expanded to loans availed by developers as well.
Though the report does not say what is meant by low cost housing, the Budget for 2012-13 gave the interest subvention of 1% on housing loan up to Rs 15 lakh where the cost of the house does not exceed 25 lakh.
The players also wanted RBI to declassify the real estate sector as high risk. This, the report said could be possible if the sector gets the status of infrastructure or core sector or industry.
"Housing should be recognised at par with as infrastructure sector and should be given cheaper project finance and the roll-over facilities also should be at par with other industries," the report said.
Currently, real estate has a risk weight of 1.25 which is quite high, the players said. Lowering of risk weight in turn will result in lower interest rates on loans and increased availability of banking and financial institutional funds to both developers and individuals.
These players also demanded that the RBI promote the secondary mortgage market through mortgage-backed securities (MBSs) and Collateralised Mortgage Obligations (CMOs) with safeguards in place to avoid a sub-prime crisis in India, similar to that in the United States.
The players said the persistently high inflation rates have made individual buyers suffer in multiple ways affecting their buying ability. Besides having less disposable incomes and savings, they are faced with increasing housing prices, further compounded by the high interest rates on mortgages.
The report said an increasing population and urbanisation coupled with the current housing shortage of 62.45 million units in India is creating a huge stress on the economy as an estimated 65.5 million people currently reside in slums, which hampers their social and economic health.
Consequently, while many other countries have a correlation of housing to GDP that exceeds 0.90, in India the correlation is expected to be around 0.78, though it has also been estimated that the sector has forward and backward linkages to over 300 ancillary industries, it added.
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