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In a recent real estate conference orchestrated by CII, Manoj Joshi, Secretary of Housing and Urban Affairs, voiced the necessity for a robust evaluation mechanism that would distinguish between reputable and subpar property developers. This system, according to Joshi, would empower the realty sector to attain financing more efficiently, minimizing dependence on customers' prepayments for project implementation.
Secretary Joshi conveyed concerns about the traditional model where construction projects primarily rely on customer advances for funding. He stressed that cash flow challenges, often a result of insufficient bank financing to contractors and small vendors, were a significant factor in project delays and cost inefficiencies.
Joshi highlighted the unfortunate reality of "black sheep" within the sector who have made financial institutions wary, leading to policies that lump all borrowers together, regardless of their reliability. Consequently, good projects and bad projects are being treated the same, branding the entire real estate sector as a risk for financing.
The Housing Secretary believes the sector should cooperate with the Reserve Bank of India and the banking system to establish guidelines for avoiding excessive bad lending. "Rating is one way, past performance is another way but we don't have a framework as of now," Joshi noted. He warned that without this credible system, securing financing for real estate projects could prove challenging.
Drawing from his experience with the Central Vista project, Joshi brought up the predicament faced by small vendors in the construction sector. He revealed that the ministry was contemplating a direct payment system to vendors within state-owned construction agencies to remedy this situation.
On the subject of urban planning, the Secretary stressed the government's commitment to reforms in town planning. He noted the allocation of significant budget resources for incentivizing states to implement reforms and decried the lack of urban planning in tier II and III cities.
In conclusion, The Secretary's remarks underscore the need for fundamental changes within the Indian real estate sector. The introduction of a solid evaluation mechanism for developers, improvements in financing practices, and reforms in urban planning are seen as pivotal steps towards a healthier, more efficient industry. As suggested, the sector needs to engage in self-improvement efforts and work in synergy with regulators to enact these necessary reforms. The hope is that these changes will inspire confidence within financial institutions, ensuring consistent and efficient funding for projects and fostering sustainable growth in the sector.
This story was first published by ET Realty
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