The Industry Speaks on the Government’s Announcement of Rs 25000-Crore Fund
The government has approved a Rs 25,000-crore fund, to help complete over 1,600 stalled housing projects, including ones declared NPAs in a bid to boost growth by steering consumption in the real estate and associated sectors. In order to restore normalcy in India’s real estate sector, the second-biggest employment-generating sector after agriculture, the government on November 6, 2019, said it would establish a Rs 25,000-crore alternative investment fund (AIF) to help complete stuck projects. According to government estimates, the fund will help as many as 1,600 stuck projects consisting of 4.58 lakh housing units across the country. Finance minister Nirmala Sitharaman said the Alternative Investment Fund (AIF) will have Rs 10,000 crores coming from the government and the remaining being provided by state insurer LIC and the country’s largest lender, SBI. The AIF funds will be released in stages through an escrow account and will be contingent upon completion of the approved phase, she said, adding the size of the fund may be increased with the participation of sovereign and pension funds.
Meanwhile, sources said about Rs 3.5 lakh crores is invested in over 1,600 stalled projects and investment of Rs 55,000 crores to Rs 80,000 crores will be needed to complete them. Niranjan Hiranandani, National President of NAREDCO and MD, Hiranandani Group, added: “The vexed problem of delayed and stalled real estate projects appears to have found a solution, with the finance minister announcing the cabinet’s approval of the scheme to provide last-mile funding for such projects, which she had proposed earlier. This will be a win-win for home buyers and real estate developers, as it will help alleviate financial stress faced by home buyers who have invested their hard-earned money, while also releasing funds stuck in such delayed/ stalled projects for productive purposes. Positive impact of the move includes generation of employment, revival of demand for cement, iron and steel industries and relieving stress in other major sectors of the economy.”
According to Shishir Baijal, Chairman and Managing Director, Knight Frank, the inclusion of developments under NPAs and NCLT, albeit that these are net positive projects, into the special window funding is a welcome decision. “The extension of this benefit to mid-income, beyond the affordable housing segment, is a critical step forward. This will help create greater momentum in inventory movement. Many projects which are near completion but have not been able to garner last-mile funds, will benefit from this move,” he said.
Kiran John, Joint Managing Director, Terapact, “According to a quarterly report by PropTiger.com, home sales in India’s nine key residential markets declined 25% in the July-September quarter primarily because of project delay-induced low buyer sentiment. Data also show developers in these markets are sitting on unsold inventory consisting of nearly eight lakh units.
While the centre has increased the tax deduction limit on housing loan interest in the annual budget to Rs 3.50 lakhs for affordable units, the Reserve Bank of India has also brought down the repo rate to 5.15% through consecutive reductions. Both these moves are targeted to push housing sales in the country, which has continuously been plunging. This will create a new avenue of relief and will help restore some buyer confidence. Most of the benefit will be felt in Mumbai and NCR. One question still unanswered is whether the programme will be expanded to include a wider range of eligible projects, as the current definition does limit the inclusion of a vast number of projects that could benefit. Demand in the affordability segment has been strong and in several cases sufficient, to fund cash flow issues already. Badly planned and executed projects may need to resort to heavy discounts to sell inventory even with this help. Overall buyer sentiment will improve knowing that the government is rolling out a concrete plan to boost the sector and a consolidated effort has already been put into motion.
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