r gandhi : real estate and housing – a sensitive sector or samvriddhi sector? speech by mr r gandhi, deputy governor of the reserve bank of india, at the “ naredco conclave – banking & investment reforms : housing for all by 2022 ”, mumbai, 20 august 2014. * * * assistance provided by shri arnab roy and shri lalit kumar is gratefully acknowledged. 1. shri navin raheja, chairman, national real estate development council, shri sunil mantri, president, naredco, members of naredco, ladies and gentlemen, a warm good evening to all of you. i am very happy to be addressing you all at this valedictory session of the naredco conclave on banking & investment reforms. real estate and our economy 2. the term “ real estate ” is defined1 as land, including the air above it, the ground below it, and any buildings or structures on it. it is also referred to as realty. it covers residential housing, commercial offices, trading spaces such as theatres, hotels and restaurants, retail outlets, industrial buildings such as factories and government buildings. real estate involves the purchase, sale, and development of land, residential and non - residential buildings. the real estate sector is a major employment driver, being the second largest employer next only to agriculture. this is because of the chain of backward and forward linkages that the sector has with the other sectors of the economy, especially with the housing and construction sector. about 250 ancillary industries such as cement, steel, brick, timber and building materials are dependent on the real estate industry. while it is difficult to estimate the exact contribution of the real estate sector to gross domestic product ( gdp ) as it appears in a disaggregated and dispersed form in the national accounts statistics, in view of what is stated above, lot of importance has been placed on the development of real estate in the country by the government. finance to real estate 3. real estate and housing sectors are unique in one respect. it is in these sectors the financing thereof is contributed by every possible source – be in the central government, the state governments, banks, nbfcs, hfcs, mfis, private capital – formal or informal, or individuals – has a hand in it ; still it is insufficient, given the massive magnitude of the needs for housing and real estate sectors in the country. 4. the government of india

/ investment in real estate by nbfcs registered with reserve bank cover the following : i. deposit taking nbfcs are not permitted to invest in land or building, except for its own use, beyond an amount exceeding ten per cent of its owned fund. ii. since september 2011, deposit taking and non - deposit taking nbfcs with asset size of ₹ 100 crores and above are required to furnish data on their exposure to real estate. iii. while granting finance to housing / development projects, nbfcs also should stipulate as a part of the terms and conditions that the builder / developer / owner / company would disclose in the pamphlets / brochures / advertisements, etc., the name ( s ) of the entity to which the property is mortgaged and that they would provide no objection certificate ( noc ) / permission of the mortgagee entity for sale of flats / property, if required. bis central bankers ’ speeches iv. the risk weight currently applicable to real estate exposures is 100 per cent. for loans guaranteed by credit risk guarantee fund trust for low income housing ( crgftlih ), nbfc - mfis may assign zero risk weight for the guaranteed portion. v. every non - deposit taking nbfc with asset size of ₹ 100 crores and above shall disclose its exposure to real estate, both direct and indirect. vi. mere extension of date of commencement of commercial operation ( dcco ) in the case of cre projects would not be considered as restructuring, if the revised dcco falls within the period of one year from the original dcco and there is no change in other terms and conditions. vii. further, the general instructions with regard to prudential norms including exposure norms are also applicable to nbfcs ’ exposure to real estate. nbfcs – real estate exposure 25. as on march 31, 2014, the real estate exposure of nbfcs registered with the bank at around 4. 1 per cent of the total assets of the sector is not significant as may be observed from the table below. further, only few nbfcs are reported to have relatively high exposure to real estate. the number of such nbfcs having exposure of more than 40 per cent of their assets was around 14. as compared to previous years, the exposure shows a rising trend, though. bis central bankers ’ speeches mortgage guarantee companies ( mgc ) 26. a mention may also be made here with regard to mortgage guarantee