"With current market conditions wherein housing is not selling well and prices are expected to fall, banks are wary of writing more construction finance loans and expected more interest for working construction finance loans LRD is emerging as better and safer assets for banks to lend to," said Abhishek Kiran Gupta of CRE Matrix. Developers agree.
"This (construction finance rates rising) clearly means that banks find it risky for themselves to give construction finance. However they have a lot of money and want to deploy this money and it’s safer for them to do an LRD because typically they will only do LRD of companies that are financially solid," said Vikas Oberoi, chairman and managing director at Oberoi Realty.
Ramesh Nair, CEO and country head at JLL believes that the construction finance rates should come down as and when the
pricing of risks in CF, which includes development timelines, absorption/sale velocity and so on, becomes easier. "There is also a need for emergence of certainty in issue like ease of labor availability for one to complete construction (if financial assistance is available). All these factors will add on to see that the CF rates should come down," he said.
Hopefully in medium term (2021) these uncertainties with reduce, positively affecting the movement of rates (reduction in CF rates) - but all depends on how this pandemic behaves by then, Nair said.
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