by Santosh Sinha
It seems the Diwali for the homebuyers and the real estate sector in India has finally come. It seems the festive season is far from getting over as new booster doses continue coming from the government. Moving a step ahead in her reformatory voyage, Finance Minister Nirmala Sitharaman, on the 6th of November, announced the formation of the ‘Last Mile Fund’ of INR 25,000 Crore for the stalled housing projects that are stuck for years. This step by the Modi Government is expected to boost the beleaguered real estate sector and reinstate confidence among stressed homebuyers. Ms. Sitharaman said that out of this fund of INR 25,000 Crore, the government will infuse INR 10,000 Crore and State Bank of India (SBI) and Life Insurance Corporation of India (LIC) will bring in the rest INR 15,000 Crore together. FM also informed that the government has already sanctioned its initial share of INR 10,000 Crore.
As per an estimate, there are around 1600 housing projects spread across India that are stuck for 2 years or more. These projects are either declared NPAs and/or the developers have filed for bankruptcy. As per the data by Anarock Property Consultants, a total of 5.76 lakh units (launched in 2013 or before) across budget segments are stuck in various stages of non-completion in the top 7 cities alone. Anuj Puri, Chairman, Anarock, says, ” This move couldn’t have come at a better time because the delay was causing serious apprehensions. The delay in the on-ground deployment of the stressed fund gave rise to severe apprehensions about the main issues – that of stuck and delayed projects – that had remained unaddressed so far. The timeline for setting up this fund and its actual implementation is quite critical. Also, the special window will get investments from institutions like LIC, SBI, and others which will take the corpus to nearly INR 25,000 crore. The fund will also be open to other sovereign funds to add to the corpus.”
Nirmala Sitharaman mentioned that this stress fund will cater to several NPA projects and projects that are facing bankruptcy proceedings under NCLT, provided they are not referred for liquidation. This window will bring in even more stalled projects into the eligibility criteria and give relief to more aggrieved homebuyers. Satish Magar, President CREDAI National, praised the government’s move to create the Stress Fund. He said, “CREDAI fraternity and the housing industry welcomes the Government’s decision to set up an Alternative Investment Fund (AIF) to rescue stalled housing projects. By providing last-mile funding to net worth positive projects, up to 5 lakh homebuyers will now be able to get the delivery of their dream home. As NPAs and NCLT listed projects would be eligible for funding from AIF, all developers have been enabled to rise above all challenges and complete their project without further delay. I also believe that these measures would have a wider impact by accelerating the much-sought investments, growth and above all employment”.
Fund crunch is one of the major issues that the real estate sector in India is facing since long. There are many developers who could not arrange the funds to execute the construction of their projects and finally had to file for liquidation. With the recent crisis in the funding sector, especially involving the Non-Banking Financial Companies (NBFCs), the availability of funds has further deteriorated. Highlighting this step as a one-point solution to the stalled projects, Dr. Niranjan Hiranandani, President, NAREDCO and MD, Hiranandani Group, termed this as a win-win equation for all the parties. He said, “This will be a win-win for home buyers and real estate developers, as it will help alleviate financial stress faced by homebuyers who have invested their hard-earned money, while also releasing funds stuck in such delayed/ stalled projects for productive purposes”. He further said, “Positive impact of the move include generation of employment, the revival of demand for cement, iron and steel industries and relieve stress in other major sectors of the economy”.
Indeed, this step by the government proposes to bail out many housing projects and revive the rays of hope for the hassled home buyers. However, it is not clear whether this will also encourage new sales. The real estate sector is struggling with the increasing unsold inventories and desperately needs measures from the government to create new demand. A cut in stamp duty or temporary removal of GST are some of the boosters that the industry experts propose to the government. With this announcement, the industry is now even more hopeful that the government shall intervene to boost demand in the market as well. Though, only time will tell what and how the government addresses this issue of the real estate developers in India.