Definition for Indian real estate to undergo a change

February 7, 2007	(1 votes, average: 5 out of 5)  Loading ...
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The government is planning to approach the Reserve Bank of India with a suggestion to redefine the country’s real estate tag excluding hotels, hospitals, and educational institutions. It has been suggested as a step to encourage lending in these segments.

Finance Minister, P. Chidambaram and RBI governor YW Reddy are likely to have a meeting scheduled to take place on Tuesday regarding the proposal. Public sector banks have carved out a niche in these categories since provisioning norms for real estate have doubled to 2%.

An increase in provisioning need of other segments of real estate is accountable for sinking demand for hotels, hospitals, and educational institutions. This is what has encouraged the need to exclude them from the category of commercial real estate, says industry watchers.

As such, these segments appear not to play a critical role in speculative asset bubble. However, banks should understand the necessity to provide hotels and hospitals with resources. Concerning the same, there is a demanding need to call for fine tuning of definition of Indian real estate.

RBI is taking every needful step in an effort to bring about an increase in lending in this sector, and has been quite successful as well with the help of direct tool. This was done in addition to the risk weights for capital allocation which was at 150 points on banks’ exposure to commercial real estate and home loans above Rs. 20 lakh.

Commercial real estate has got a real boost in the past few years. The sector has marked a growth of 102%, a large part of which is accountable for by hotels, hospitals, and educational institutions.

Based on market value, home loan market rarely shows same alacrity while shooting up as it does when going down. Negligence in home loans has been more due to fake title deeds, says FM.

Feeling concerned because of overheating of the real estate market, the RBI increased the risk weights for lending to commercial real estate in 2005 from 100% to 125% and further to 150% last year. The need for provisioning the standard advance under commercial real estate and housing loans of Rs. 20 lakh and above was increased from the earlier 0.4% to 1%.

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