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LIC Housing shifts focus to loaning builders

24th November, 2008

The Economic Times

LIC Housing shifts focus to loaning builders
The Economic Times
24 Nov 2008, 1606 hrs IST, Saikat Das, ECONOMICTIMES.COM
MUMBAI: While the frozen liquidity lines have checked the real estate boom, LIC Housing Finance is disbursing more loans to builders/developers who constitute 6 per cent of their business as against individuals which make up 94 per cent of their business.
“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,” said R.R. Nair, director and chief executive, LIC Housing Finance.
Ground reports suggest builders are now negotiating prices with buyers, although they still refuse to reduce property prices officially. LIC Housing aims to convince builders to bring down prices to a reasonable level by offering easy and hassle-free loans to builders (for new projects).
The idea behind the shift in focus is to encourage individual buyers to book properties. The intention is evident in the loan disbursement target set by the company for the current fiscal. The company plans to disburse Rs 8,000 crore in home loan segment and Rs 2,000 crore loan to builders by the end of the current fiscal, as against Rs 5,900 crore and Rs 1,200 crore respectively in the last fiscal 2007-08.
As of today, LIC Housing has disbursed Rs 5,000 crore, of which Rs 500-Rs 600 crore went to builders. Moreover, it has already approved Rs 6,000 crore loans for which disbursement is due.
In the words of Mr. Nair, this strategy can be coined 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 is funding builders in all projects sizes--big, medium and small. According to the 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. However, Mr. Nair refused to comment on these developments.
In disbursing loans in this distressed economic situation, LIC Housing is however taking certain precautionary measures. The company is now funding estate projects mostly in consortium 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 ensures that the asset value of the securities given by the borrower as collateral is twice the loan value. Thirdly, it meticulously examines the cash flow of the builders in respect of the current depression. LIC Housing also studies the neighbourhood to determine the rationale for pricing a property.

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