The Reserve Bank of India (RBI)’s decision to allow co-operative banks to grant finance to commercial real estate –residential housing segment within the existing aggregate housing finance limit of 5% of that total asset is expected to boost self-redevelopment of housing societies in cities especially in the country’s commercial capital Mumbai.
The decision is expected to open more liquidity and financing avenues for real estate development. Real estate projects involving redevelopment and rehabilitation are the mainstay of Mumbai’s property market as the land starved city has very few vacant land parcels.
The central bank has issued a statement on various developmental and regulatory policy measures in which individual housing loans and commercial real estate funding by cooperative, district central cooperative banks and the state cooperative banks have been considered.
Real estate experts say self-redevelopment is a best alternative for housing societies to start the redevelopment considering the number of stalled projects and the default committed by several real estate developers living project beneficiaries in a lurch.
As per the notification of RBI, the district center co-operative bank and state co-operative banks are allowed to provide finance to commercial real estate residential housing. Due to this notification by RBI, state co-operative banks and other district co-op banks will be able to grant loans to housing societies that are opting for self-redevelopment instead of handing over the project to a developer.
The RBI’s new policy will help housing societies’ self-redevelopment projects to receive the much-needed funding support from the banks and this is expected to bolster the number of such self-redevelopment projects.
Self-Redevelopment provides maximum security to the members, less litigation and provides additional benefits to the members in the form of additional area, additional corpus over and above what the developer usually
The Mumbai Suburban District Federation has constituted a separate free advisory cell to guide housing societies looking for self-redevelopment from the planning to project completion stage until the occupancy certificate (OC)
The central bank’s decision to relax housing loan norms of cooperative banks by increasing the limit for individual housing loans by 100% is expected to support the real estate sector in tier 2 and 3 cities and towns with a multiplier effect on the economy.
These limits were last revised for urban co-operative banks (UCB) in 2011 and for rural co-operative banks (RCBs) in 2009.
Considering the needs of the homebuyers, the individual housing loans for tier I cooperative banks has been enhanced from Rs 30 lakhs to Rs 60 Lakhs and for tier II of Co-operative Banks from Rs 70 Lakhs to Rs 1.40 crore.
The Mumbai Bank has been providing funds to the housing societies for self-redevelopment since 2016. However, in 2019 when the state government appointed Maharashtra State Cooperative Bank as a nodal agency to grant the
self-redevelopment funding, the RBI restrained the Mumbai Bank and Maharashtra State Cooperative Bank to lend the self-redevelopment funds to the housing societies considering the same as commercial real estate funding.
With the revised norms, the central bank has provided a major relief to financing of self-redevelopment projects.