Realty, infra firms say bank loans key to recovery

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Mumbai: Real estate and infrastructure firms do not expect the fiscal and monetary measures announced last week to help them much unless banks boost lending, improving demand in the embattled sectors.

The Reserve Bank of India (RBI) slashed two key short-term interest rates by 100 basis points and the federal government eased rules for foreign borrowings by the two sectors, which the firms hope will bring in more customers and ease a cash crunch.

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"Lending should hit mainstreet now. The reality of realty is that till the time people do not have money in their pockets, they do not come and buy flats," Sarang Wadhawan, managing director of Housing Development & Infrastructure Ltd.

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Asia's third largest economy is widely expected to grow around 7 per cent in the year to March, compared with 9 per cent or more in the last three years, dragging down activity in the construction and real estate sectors.

Many home buyers were staying away from the overheated market, anticipating property price cuts, said Shailesh Kanani, analyst at Angel Broking said, even as the job market weakened and real incomes shrunk.

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Realty prices have fallen 15-20 per cent from their peak and should drop another 15-20 per cent more over the next two quarters to revive demand and make flats affordable, he added.

The BSE realty index has plummeted 90 per cent to an all-time low of 1,403.13 points in December 2008 from its all time high of 13,848.09 points in January 2008.

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"Even since last month we find some improvement in demand. Whether it is going to remain that way or not, only time will say," said J.C. Sharma, managing director of Sobha Developers Ltd.

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Access to foreign funds

India has also let infrastructure lenders and township builders access to foreign funds, and permitted a state-run infrastructure lender to raise Rs 30000 crore in tax-free bonds.

But overseas borrowing options would remain limited, given a global credit crunch, officials said.

"They have opened up the ECB route, but we all know the international scenario," H.S. Bharana, chairman of Era Infra Engineering Ltd said. "I don't feel the money will come immediately."

Construction projects were stifled on concerns about earnings and the viability of expansion projects, and analysts said the real fillip would come not from supply-side measures like the latest, but only if demand was encouraged.

"That's a long-term view the government has taken. What real estate developers are looking for is short-term impact," Omaxe's vice president for finance Sunil Malhotra said.

The Rs 30000 crore bond issue by India Infrastructure Finance Co (IIFCL) would probably hit the markets in the fiscal year ending March 2010, but the market's appetite for them would hinge on the structure and the rates offered, Malhotra added.

"It should be attractive. On the other hand, it cannot be very attractive as they have to lend to infrastructure companies, where the rates should be low. So it's a Catch-22 situation."

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Era's Bharana said the IIFCL bonds would likely be subscribed by banks who had been parking money with the central bank in a bid to conserve liquidity.

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