Bank gives hope to India's developersOverseas Property | Dhwani Pandya 16 Jan 2020
India's beleaguered developers see a glimmer of hope after the nation's biggest bank announced a program that could unclog choked funding lines to the property market.
State Bank of India yesterday said it will finance both builders and homebuyers, charging developers a premium and offering the latter a refund if their apartments are left unfinished. While Sunteck Realty will initially partner with SBI, Poddar Housing and Development said it would contact the lender and others indicated they could join in coming months.
"This is the first time ever a bank is taking responsibility for project completion," said Rohitashwa Poddar, managing director at Poddar Housing. "It's a very big move."
The weakest economic growth in a decade is denting demand for apartments even as a crisis among shadow lenders squeezes financing for developers, leaving them unable to finish projects and sometimes forcing existing buyers to complete construction of their own homes.
SBI now stepping in as middleman, following a government move to set up a fund to complete stalled projects, may go some way in restoring trust.
Vikas Oberoi, chairman of Oberoi Realty, said that though his firm doesn't need project finance, it "will be happy to tie up with SBI under this scheme so our buyers feel additionally secured."
Mumbai-based developer Ekta World may consider the plan in future, chairman Ashok Mohanani said. Other banks may also follow SBI, he said.
Under the program, SBI will lend developers across seven cities as much as four billion rupees (HK$440 million) for apartments priced as much as 25 million rupees. SBI will only fund those with a good credit score and track record, chairman Rajnish Kumar said, adding that developers will be charged a premium, while home-loan customers can avail themselves of existing rates.
SBI's loans for affordable housing projects carry an interest rate of 10.5 percent, which would rise under the new program, while non-bank financiers already charge more than 18 percent.
Growth of home sales in the seven top cities slowed to 5 percent in 2019 from 17.6 percent a year ago. About 1.15 trillion rupees of capital may be stuck in 350 large projects stalled across Indian cities. The government in November announced a 250 billion rupee fund to salvage stuck residential projects.
SBI may also have tied up with mortgage guarantors to insure itself against risks, said Pankaj Kapoor, managing director at property-research firm Liases Foras. The lender can cover about 30 percent of India's real estate market, he estimated. "Slower sales are the biggest issue for developers and the new funding method will address this problem," he said.