The government's piecemeal approach to India's real estate industry is not enough to revive demand and bring back to health the sector that is reeling under a prolonged demand slowdown and a severe liquidity crisis. Finance Minister Nirmala Sitharaman's announcement of Rs 20,000-crore fund to complete stalled projects may be a liquidity booster but the government has not announced measures to create demand, which is necessary to rid the sector of unsold inventory and persistent cash crunch.
The fund comes with many riders that most projects, especially in the National Capital Region (NCR), will not stand to gain anything. Of the Rs 20,000-crore funding, the government will provide Rs 10,000 crore, while the rest will come from other financial institutions. It will provide the last mile funding for projects that are not non-performing assets (NPAs) and have not been referred to the National Company Law Tribunal (NCLT).
As a result, several projects of builders that are facing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), including Amrapali, Jaypee, Housing Development and Infrastructure Ltd (HDIL), Three C Projects, Today Homes and Raheja Developers, will not benefit from the fund. "This announcement will not solve the problem of delayed or stalled projects and affected home seekers in locations like the NCR," says Niranjan Hiranandani, President of real estate developers' body NAREDCO.
Anuj Puri, Chairman, Anarock Property Consultants, says the funds are not even enough to give relief to the real estate sector as a whole. "There are more than 5.5 lakh units that are stuck or delayed in top 7 cities alone, and the number would be much higher if we consider all cities and towns," he points out.
BIAS TOWARDS AFFORDABLE HOUSING?
Moreover, to be eligible for funding, the projects have to be 60 per cent complete and be net worth positive in affordable and middle-income category. This implies the stalled houses with a price tag of over Rs 45 lakh, which do not qualify to be under the affordable category, will not be able to use the fund. "The fund is for projects in the affordable and mid-segment housing only, leaving out those in the luxury segment. Also, there is no clarity of the price of mid-segment homes that will be included under this fund. There is a need to change the definition of affordable housing based on different cities," says Puri.
And while Sitharaman also said that the real estate external commercial borrowing (ECB) guidelines would be relaxed, it'll also be only for the affordable housing segment. With the government's sole focus only on the affordable housing for now, other segments will have to wait for their turn of sops.
The government has also not done much to address the demand creation issue. The real estate sales have been stagnant for almost three years now, with affordable housing being the only segment to witness 5 per cent growth. Since all sops are directed at the affordable housing, it'll be the only segment to register sales. If the government extends similar benefits to other categories of homes too, it will result in the revival of the overall sale numbers.
Shishir Baijal, Chairman and MD at Knight Frank India, believes the announcement would not give a fillip to the sales. "We feel these (measures) do not sufficiently address the issues of the sector in terms of continued slow sales and low demand. The larger issue of the demand creation has not been addressed."
According to real estate consultancy Liases Foras, nearly 13 lakh houses are lying unsold in top 30 cities of India, including in the metros. Overall, it will take 40 months to clear the unsold inventory of homes in the country. In the absence of any measures to push demand and sales of these houses, builders will continue to feel the cash crunch as they are not able to generate returns on their investments. It is only when customers continue to buy that developers are able to have a steady flow of cash. "We will have to wait and see if these measures, including those announced to revive auto, manufacturing, etc, revive the economy and lead to stability and growth in demand," says Baijal.