Promise me

Cash strapped developers in India are going back on a promise to sell properties at a reduced price in return for beneficial loan rates, it is claimed...

The banking system's bail out programme to help developers is now under strain. Some bankers have complained to the central bank that after making use of the relaxed rules, which permit banks not to classify loans to real estate firms as bad loans the moment they are restructured, builders continue to hold on to artificially inflated prices.

The restructuring system is one off measure to help developers cope with falling demand and the credit crunch but it has also provided builders with an opportunity to hold on to high property prices rather than sell at a lower values.

'There is a feeling among bankers that builders are choosing to retain assets on their balance sheets rather than reducing prices and getting rid of assets,' said one banker.

'In other words, to overcome the liquidity crisis, builders are pushing for restructuring of loans rather than selling off assets or reducing property prices,' he added.

Major developers such as DLF, Unitech, Sobha, Omaxe, Parsvnath Developers and Housing Development and Infrastructure have approached the banks to restructure their loans.

While bankers are furious that real estate companies are reluctant to reduce rates, they in turn, blame banks for causing the market slump and lower sales volumes by charging high rates on home loans.

Indeed affordability is the main problems hampering a recovery in the property markets in India, according to analysts.

Real estate investors are cautious and there is a lot of uncertainty about the future of projects but prices are becoming more realistic, said Anshul Jain, Chief Executive Officer of DTZ International.

'Demand is not a problem in India, however affordability is. The supply needs to be introduced at the right price points to meet the demand, only then will the level of transactions pick up,' he said.

He also pointed out that not all the developers are facing a liquidity crunch and some still have a high holding capacity.

Source: www.propertywire.com