Wednesday, 27 May 2015

Builders face double whammy as loans slow amid sales slump

Indian builders struggling to sell homes amid mounting debt face a new hurdle: reluctant bankers.

“There’s a lot of demand from builders and commercial real estate developers for loans,” Ranjan Dhawan, Bank of Baroda’s Mumbai-based chief executive officer (CEO), said in a 11 May interview. “There’s a limit to how many builders we can FINANCE. The current economic scenario has made us very cautious.”

Expansion in lending for commercial real estate slowed to 8.9% in the 12 months through 20 March, from 22.4% a year earlier, central bank data show. Home SALES in India’s top six property markets fell 8% last quarter from a year earlier, according to research firm Liases Foras, which estimates it will take 46 months to find buyers for unsold homes in Mumbai alone.

Some of India’s largest developers have seen debt surge more than 60% as mortgage rates around 10% deter buyers of their new apartment projects. Three out of India’s five-biggest banks REPORTED an increase in bad loans for the year ended 31 March as policy makers’ efforts to boost investment and economic growth have yet to bear fruit.

Slowing inflation:
Banks are also becoming more cautious about financing apartment purchases amid a slowdown in house-price inflation, the central bank said in a REPORT on 7 May, noting that lenders are bringing down the loan-to-value ratio for mortgages. The ratio represents the percentage value of an apartment that the bank may lend to customers.

Loans outstanding at Indian banks to developers stood at Rs.1.7 trillion, Reserve Bank of India (RBI) data show.

The All-India Residential Property Price Index, which tracks real estate prices in 13 cities, increased less than 4% in the December quarter from the previous year, the lowest since the June quarter of 2011, according to the RBI. The pace of annual gains peaked at 28% in the three months to 31 December 2012. House prices in Mumbai fell by more than 3% in the December quarter from the year before.

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