Will the bailout package work?

Geetu Vaid

The government’ largesse for the real estate sector as announced by the Finance Minister last week, has created a buzz in the tottering sector. The Rs 10,000 crore allocation for last-mile funding for delayed projects in affordable and mid-segment bracket with roughly the same amount of funds being added by investors such as LIC and others, is surely a shot in the arm for the liquidity-starved sector. Add to this the move to relax External Commercial Borrowing (ECB) norms, and one would expect a sweet pill that would ‘heal’ the ailing sector. But before your expectations soar high, remember that the pinch of salt in the sugar-coated pill is difficult to ignore. This is because the number of projects that will actually benefit from these provisions will be just a small percentage of the total affected projects. 

The reason being that the bailout package for distressed affordable housing projects comes with the caveat that to be “eligible” for the funding, these should not be NPAs or pending under NCLT. Moreover, the projects should also be 60 per cent complete. These caveats will “disqualify” a large number of delayed projects, especially in worst-affected markets like the NCR where most such projects are NPA or under NCLT. The industry bodies are sceptical of the impact of this move on this count. While Satish Magar, President of CREDAI terms the government’s move to be a half-hearted one, Niranjan Hiranandani President of NAREDCO, too, minces no words to convey that homebuyers in NCR can’t hope for much relief from this move.  

According to real estate consultancy firm ANAROCK not more than 2.5 lakh units across seven top cities will actually be able to get relief from this stress fund. “A total of 4 lakh units in projects launched in 2013 or before are stuck or delayed across various segments, excluding NCLT projects. Of these, only those that fall under the affordable or mid categories — 2.5 lakh units — can legitimately avail of the government’s new provisions”, says Anuj Puri, Chairman, ANAROCK Property Consultants. According to Prop Tiger, too, there are 4.1 lakh apartment units below the Rs 45-lakh price tag as on August 2019. It is not known how many of these are 60 per cent complete, but a fund of Rs 20,000 crore will adequately fund 40 per cent of the construction cost for as many as 2.5 lakh units. The malady of delay is widespread and much larger than the numbers that will get relief. Thus, this booster has limited implications. 

Industry mavens also point out the fact that most of the projects meeting the above criterion are likely have access to other sources of credit also. The need of the hour was, in fact, to find a resolution for stressed assets that are not able to tap into conventional sources of funding.

Moreover, there is no respite in sight for buyers of premium and luxury projects that are in a limbo. There is also no clarity of the price of mid-segment homes that will be included in this move. 

Experts also highlighted the need to redefine the term “affordable housing” by removing the price cap of Rs 45 lakh and focus on project size. “I do not understand the logic why someone would think that Rs 45 lakh is a suitable benchmark for affordable housing, when it makes no sense for projects in Delhi, Mumbai and Chennai”, says Hiranandani. The several important areas as well as demands of industry remain unaddressed at the moment and the government needs to factor these in immediately.  As Magar says, “A lot is at stake for the developers, buyers and the country’s economic situation. It’s about time the government works towards resolving the root cause instead of just announcing piecemeal reforms that will not have a tangible impact in the long run.”