News & Views on Indian Real Estate

Friday, October 10, 2008

StanChart gets tough with realtors

Real estate developers have taken the severest hit from the funds shortage banks are going through. DLF Ltd and Unitech Ltd, the country’s two of the largest real estate developers, have not been able to draw on loans sanctioned by their bankers.

Standard Chartered Bank, the second largest foreign bank in India after Citigroup, has held back disbursement of loans sanctioned to DLF and Unitech. The bank declined to comment on the development. Spokespersons of the two real estate developers also did not want to comment on the issue.

Industry sources said Standard Chartered’s decision against increasing their exposure to the real estate sector is in view of a slowdown in home sales as property prices have reached unaffordable levels, particularly in the metros.

StanChart is not the only one pulling out of financing real estate developers.

Almost all banks have withdrawn from funding real estate developers, a segment considered as “sensitive” by the Reserve Bank of India (RBI).

Banks want to limit or reduce their exposure to real estate developers because this sector could be in severe trouble in the event of a prolonged slowdown in home sales. All the financial crises in the last 30-odd years have had their origins either in the equity markets or the real estate sector. The current financial crisis too had its origin in the crash of the US housing market.

The total exposure of banks to real estate developers at the end of March 2008 was Rs 62,276 crore. The growth in these loans in 2007-08 had dropped to 37 per cent from 69 per cent in 2006-07.

The increase in housing loans extended by commercial banks too slowed significantly in 2007-08. During the year, the increase in home loans was just 10.7 per cent against 24.7 per cent in 2006-07.

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