Nirmala Sitharaman’s real estate booster unlikely to benefit majority of stuck projects

Nirmala Sitharaman's real estate booster unlikely to benefit majority of stuck projects

In order to provide relief to homebuyers, who have been waiting for many years to get the delivery of their houses, the government has announced to create a Rs 20,000 crore fund. The fund will provide last mile funding to housing projects that are stuck due to lack of funding.

Of the total Rs 20,000 crore, Rs 10,000 crore will be provided by the government, while the rest will come from institutions such as Life Insurance Corporation (LIC), other institutions and private capital from banks, sovereign funds and development finance institutions (DFIs). The fund will be set up as a category-II Alternative Investment Fund (AIF) and will be professionally run with experts from housing and banking sector.

Experts believe the government’s decision to provide the last mile funding is a wrong approach and is unlikely to benefit majority of the projects, which are stuck in different stages of construction due to the definition of the projects under this scheme.

Only those projects that have been completed 60 per cent and are non-NPA, non-NCLT and net-worth positive in the affordable and mid income category will get funding under this scheme.

Pankaj Kapoor, MD, Liases Foras, says, “There are over 5 lakh units or around 5000 projects/buildings, which are stuck under different stages of construction. As per our data, in majority of stuck projects, only 25 per cent of the construction work is complete. Very few stuck projects (around 200 projects) are those where 60 per cent of the work is complete. It comprises just 50,000 to 60,000 units.”

Experts believe government should think of the definition of the projects that should get the benefit of this scheme.

“Generally builders will have already received 90-95 per cent of the receivables (from customers) for the projects that are 60 per cent complete. If they have not used the money for the construction of the project, it means they have diverted the funds and such projects will be unviable. A fund cannot really support it because builders may not have enough receivables to pay back the money given to them,” he added.

Besides, more clarity is needed in terms of the execution of the measures announced.

Virag Gupta, Advocate, Partner at a New Delhi-Based law firm VAS Global says, “There is no clarity on who will be getting the money. Will it be given to the builder, the bank or NBCC? In what form will this money be provided? How will the government recover the money from projects where builders have taken the entire money from customers? Another important aspect is to figure out projects where money is needed to be pumped in. Who will decide this and on what basis?”

Experts also believe that more measures are needed to boost the demand, which has been severely impacted in the recent times.

“Announcements by the Finance Minister Nirmala Sitharaman are in the right direction and are poised to address some of challenges faced by the real estate sector. While we welcome these changes, we feel these do not sufficiently address the issues of the sector in terms of continued slow sales and low demand,” said Shishir Baijal – Chairman & Managing Director, Knight Frank India.

“The larger issues of demand creation has not been addressed in any way and form in these announcements,” he added.

The sales in the sector have been impacted after the National Housing Bank banned subvention schemes, which were a major source of funding for builders in the under construction segment. Sales in under construction properties have been hit as people prefer ready-to-move-in properties, where GST is not applicable.

“There has been a growth in sales over the last two years thanks to some of government measures, but things have really worsened post May and June due to the economic slowdown, withdrawal of subvention schemes and the implementation of the GST. 90 per cent of today’s supply falls under under-construction segment. Therefore, the government needs to rethink and work out measures that will help boost under-construction sales,” says Kapoor.


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