After the government announced a Rs 25,000-crore special liquidity fund to help unfinished housing projects, the State Bank of India (SBI) has come out with a unique 'guarantee' cover for residential home buyers across ten cities of the country.
At a time when millennials are not buying real estate and the willing home buyers are a bit cautious because of unnecessary delays in project completion and slowdown in the economy, SBI has offered to refund the buyer's amount (principal paid by the home buyer) invested in an under-construction project if the builder fails to handover the occupancy certificate within the agreed time period.
This time-period cutoff is based on the timeline submitted to RERA (Real Estate Regulation and Development Authority). This comes as an additional cover over and above RERA.
SBI's move is a good sentiment booster as people currently don't have the confidence to buy houses because of the prevalent volatile economic environment, and the track record of builders delaying projects. The job losses in IT, auto, telecom and many other sectors are also creating an environment of uncertainty in the job market.
While such a guarantee by the biggest bank in India is a nice move, the success of measures like these comes from their scale. Take, for instance, the SBI has tied up with only one builder. Besides, there are also other large players in the game, like HDFC, ICICI, and many banks and NBFCs that need to replicate or offer similar confidence-building measures to push the demand in the real estate sector.
The bank's scheme will cover only affordable houses that cost up to Rs 2.5 crore in seven to ten cities to start with. The logic of covering such a high number of homes with a price up to Rs 2.5 crore shows that the scheme would initially be rolled out in top cities. SBI is also providing a loan of Rs 50 crore to Rs 400 crore to reputed builders.
With Union Budget 2020-21 round the corner, expectations from Finance Minister Nirmala Sitharaman to further boost the real estate sector are high. There is already a demand for restoring income tax benefit on the second home, lowering stamp duty, and providing more liquidity. However, there are fiscal constraints to expect anything big from the Budget for the real estate sector, says a banker. "The government could use the public sector banks to support the sector," he further says.
Currently, the demand for real estate, which was hit by twin shocks of demonetisation and Goods and Services Tax, is not picking up despite low interest rates. The prices for residential segments are either stagnant or moving up marginally.
Additionally, builders who have taken loans from banks are also caught in liquidity mismatches as they have to cough up funds to pay back loans. The funding from non-banking financial companies (NBFCs) has almost stopped due to liquidity mismatches originating from loans to builders. The industry is already asking for some sort of loan restructuring from banks, or some kind of moratorium to tide over the ongoing difficult years.