LIC Housing Finance giving loans to builders

The expectations have grown high regarding the downward slope in the interest rates of home loan after the cut in repo rates. Therefore LIC Housing Finance is distributing more loans to builders/developers who comprise to 6% of their business as against individuals which frame up to 94% of their business.

R.R. Nair, director and chief executive, LIC Housing Finance informed that, “We are supporting the builders and developers by funding their upcoming projects to support individuals to afford real estate properties. This will, in due course, result in escalating business in our home loan segment”.

According to latest reports builders are now negotiating prices with buyers, though they are still refusing to reduce property prices officially. LIC Housing is offering easy and hassle-free loans to builders (for new projects) with an aim to encourage builders to reduce prices to a reasonable level.

The main idea behind the move in focus is to encourage individual buyers to book properties. The objective is clear in the loan disbursement target set by the company for the current fiscal. By the end of the current fiscal the company plans to distribute Rs 8,000 crore in home loan segment and Rs 2,000 crore loan to builders, as against Rs 5,900 crore and Rs 1,200 crore respectively in the last fiscal 2007-08.

Up till now, LIC Housing has distributed Rs 5,000 crore, of which Rs 500-Rs 600 crore has been given to builders. Furthermore, it has already sanctioned Rs 6,000 crore loans for which disbursement is due.

In the words of Mr. Nair, this strategy can originate as “loan on tap”. “When we give loans to builders, we also make soft approach to their buyers to take home loans from us. The builder himself shows the way, although it is not a compulsion for the buyers,” he explained.

LIC Housing will be providing funds to builders in all projects sizes--big, medium and small. As per information available from sources it has allocated funds to real estate projects of Rajeha Builders, Sheth Builders and is also in the process of loaning money to Sriram Builders. But Mr. Nair refused to comment on these developments.

While distributing loans in this distressed economic situation, LIC Housing is taking certain precautionary measures. At present company is funding estate projects mostly in groups with other financial institutions like HDFC, SBI, Punjab National Bank, Axis Bank, Central Bank. “This strategy was framed to distribute the risk factor, especially in this downturn market. In a big project of Rs 2,000 crore, if all institutions contribute partly, the risk factor is mitigated on pro-rata basis,” Mr. Nair said.

The company also makes sure that the asset value of the securities given by the borrower as collateral should be twice the loan value. Thirdly, it is carefully examining the cash flow of the builders keeping in mind of the current depression. LIC Housing also do the study of the neighborhood to determine the rationale for pricing a property.