Builders to Pay High Interest Costs

June 13, 2007	(Be the first to rate this story!)  Loading ...
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Since there is a ban on overseas borrowings, big builders like Unitech Ltd and Parsvnath Developers Ltd. will require paying high interest costs on loans in five years.

Parsvnath Developers had been quoted 14% interest on a loan from a state owned bank, says its chief financial officer Ravi S. Pani. The finance ministry’s 18 ruling will add to Unitech’s funding charges at least by five percentage points.

The only aim of the government behind banning overseas borrowings to developers is to cool the real estate prices which have shown a three fold increase in three years and pushed the value of rupee to a nine-year high.  Higher interest costs may help in putting off the developers from building the 10 million housing units a year.

Builders are showing anguish over the issue and criticizing the government to single out the real estate sector. Indian real estate developers need loans to buy land and construction supplies like cement and steel as Asia’s improving purchasing power makes it affordable for the nation’s 1.1 billion people to buy residential property.

Adding to woes of the builders, The Reserve bank of India (RBI) has asked the banks to cut exposure to real estate companies thereby making it harder for them to obtain cheap financing.

Interest rates are, however, no big issue for builders. But what is bothering them is the question of availability of funds.  Unitech was about to complete an overseas loan when the finance minister P. Chidambaram changed the rules.

Indian private banks including ICICI bank Ltd. and HDFC have raised interest rates on home loans thereby discouraging buyers from purchasing small residential properties, says Rajiv Singh, Vice Chairman of DLF Ltd.

The rules are forcing builders to compromise on borrowing costs and will also affect them if timely generation of the funds is taken into concern.

Indian real estate companies are looking forward to overseas lenders as he benchmark rates for firms borrowing in London is more than three percentage points lower as compared to the rate available in India.

News Published Under:   Banking and Finance |