Real Estate Finance

By Murari Chaturvedi

Real Estate development is one of the biggest industries in India. Though it is still placed in the category of “Informal Sector”, its importance and contribution to national GDP is very high. There are many aspects of Real Estate finance. The public aspects is mostly of housing finance. In the fifties, there were no housing finance companies in the country and housing finance needs were catered by the Life Insurance Corporation of India (LIC) against the LIC policies. Later on, when the need of housing loan were increasing, the first company HDFC came into being in 1977. To owns ones home gradually became paramount as against rental housing. Later on many housing finance companies came into existence plus commercial banks also started giving loans to purchase a house. Today nearly 90 per cent of the people cannot think to purchase a house without a housing loan. But most housing finance companies don’t give housing loans to the informal sector. The term, real estate finance, is very wide today. Construction finance has emerged as one of the most important sector today. The funding requirements are very high and are for the short term as against housing finance which is long term, say 15-20 years. But construction finance is still a vital part of housing development. Since most developers in this sector are corporates with land holdings, there are many options for them to raise finance. Since 2006, the Reserve Bank of India (RBI) has raised the risk weight for construction finance. Foreign Direct Investments (FDIs) in Real estate is currently 100% for construction of houses, commercial premises and resort subject to the limits of 50,000 sq. m. or 25 acres. Then there are Real Estate Mutual Funds (REMF). They invest in a range of Real Estate assets around the country. The Real estate Investment Trusts (REITs) is another player in the sector who invest in Real Estate directly, either through properties or mortgages. In fact too much money is now chasing Real Estate development. But Real Estate transactions especially land acquiring involves too much black money and too tardy legal complexities. It is time to short out the issues, specifically legal lacuna if we want faster development in the Real Estate sector.





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