RBI's move may boost cost and reduce the demand:
The Reserve Bank of India’s move to ask lenders to set aside more funds to cover defaults on loans to property companies may boost costs at real estate developers and reduce demand for homes, company officials said.The central bank yesterday ordered lenders to set aside an equal amount of their loans to cover for potential bad debts at property companies, an increase from 40 percent to help banks build a cushion against likely bad debts.
"Property developers may be forced to “pass on the prices to the end user," said DTZ’s Bhikshu. "This, combined with the sluggish sales of last few months, indicates that the sector’s recovery path could see some hurdles in near future." Read More
No asset bubble. It's turned around !
The Reserve Bank seeks to head off a real estate bubble, withdraws an earlier move to revive the sector..According to Mumbai-based Housing Development and Infrastructure Ltd (HDIL), the third largest developer by market value, home prices may increase depending on the liquidity levels of companies.
“The new provisioning norm will make lending more expensive for developers, squeezing their profitability, and so those in need of cash flow may pass it on to buyers, leading to a rise in prices,” said Hari Pandey, vice-president, finance and investor relations, HDIL. Read More
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Funds just got costlier for builders
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