Global funding mechanism may not work in Indian real estate

Track2Realty Roundtable-VI

Venue—Hotel Kohinoor Continental

Moderator—Pranay Vakil, Chairman, Knight Frank India

Panelists—Kruti Jain, Director, Kumar Urban Developers

                        Sunil Dahiya, MD, Vigneshwara Developers

                        Atul Modak, Head, Kohinoor City

                        Ravi Sinha, CEO & Managing Editor, Track2Realty

Atul Modak: Why did bankers’ lobby not block the mutual funds then?

Pranay Vakil: Because the mutual funds lobby is larger than the bankers’ lobby. They could not do anything about it. The companies into mutual funds are so large, they might just foray into banking.

Ravi Sinha: To take what Pranay has said forward, let us discuss what are the best practices that can be adopted in the Indian market.

Pranay Vakil: Right Ravi, that will give a better perspective also.

Atul Modak: I think Sunil has rightly pointed out that we cannot just copy what is happening abroad because what has happened to real estate in the US is because of the kind of funding they did. But at the same time in India, whatever requirements are there, we have been talking about the funding gap, most of the developers are selling instead of leasing the properties because of the funding issues. At the same time most MNC’s are looking for commercial property on lease.

If at all Government or RBI has been stringent, it has been good in the recession period. Today, other industries are being funded for inventory, you get car loans at cheaper rates, but if the banks start funding for the land and they have some control over where that money is going. If there is no diversion of funds, I think most of the problems will be solved.

Sunil Dahiya: I think largely at the regulator level, I always say that you should stop the misuse, not the use. Makes the checks and balances.

Ravi Sinha: But then why the sector has never been unanimous on escrow account?

Sunil Dahiya: The escrow is a failed model. We were discussing the same at NAREDCO, for submitting inputs for the bill. Escrow account will say, if you are taking the money from the consumer, you can not divert the money. I agree. The question is diversion and misuse. But why stop the use? Today when I buy a house, my project is worth Rs. 300 crores and I am selling at Rs. 600 crores. Should I have my Rs. 600 crores stuck in an escrow? What will I do? As a business entity, I will fail. I will not be able to take any money from that escrow. Until I get the completion certificate, I will not get that money.

Kruti Jain: The escrow model works very different in Singapore. There it works because you have funding to the developer at the same rates at which you would have deposits. And that is why it works, because you have alternate funding at the same cost. In India it does not because you have a huge gap. If I keep that in an escrow, I will get around 8% and if I put it to use, I would be able to save about 13%. So yes, in India it does not work that way. Coming to where we left off from, I don’t think the issue with the industry right now is that we have transparency issues. We are by and large the one who are crying about permissions. But the issue is can we get an innovative way and get a solution for cheaper, timely funding and organized, reliable options to which I can fall back at my timeline.

…..to be continued