Looks like the RBI is all set to achieve what the politicians in India couldn't - bring some sanity to the real estate prices in the country, especially Mumbai.
As per a leading daily, with banks and financial institutions no longer willing to lend to real estate, it is only the large and credible builders that would now be able to avail of loans from banks. For the rest, the tap of money has been turned off.
Not just that, banks have also started mopping up whatever money they had lent to these builders. This is because banks do not want to get into RBI's cross hairs as the central bank has become very strict with respect to real estate lending.
This new found strictness of the central bank has to do with the recent LIC Housing scam. It should be noted that this scam, which laid bare the dirty collusion between bank officials and real estate companies, had hurt the credibility of the Indian banking system. Its repercussions were not restricted to the banking sector but also affected other sectors of the capital markets like equities.
Thus, not wanting to take any chances, the RBI had stepped in and had directed banks to limit their exposure to the real estate sector, dubbing it as sensitive.
Before the clampdown, real estate players in the city were having a whale of a time. Cheap funding from the banks was available on call and hence, they did not bother to lower realty prices even if there were no sales for a few months.
But now, with money drying up, most developers we believe will have to liquidate their current housing stock so that the cash flows can be improved. Furthermore, with realty prices in some pockets ruling at abnormally high levels, a possibility of price reduction in order to boost sales can also not be denied.
All in all, the recent step by the RBI could well turn out to be a boon in disguise for people wanting to buy their dream homes in the city of Mumbai.