Govt sets up Rs 20,000 cr fund to complete stalled housing projects; fund too narrow in scope, say experts
An estimated 8.5 lakh home buyers are yet to get delivery of their units as hundreds of housing projects across the country are delayed due to liquidity crunch and demand slowdown,
The Rs 20,000 cr fund comes to rescue of an estimated 3.5 lakh distressed middle class home-buyers
Rs 10,000 crore towards the special window will come from the government and "roughly same amount" from other investors, like LIC and sovereign funds
Home buyers have already been made financial creditors under the IBC and they would get their claim, said Nirmala Sitharaman
The government on Saturday announced a series of measures to revive the housing sector and boost exports as the government tries to kick-start an economy hit by a lending crisis and a slowdown in demand.
Coming to rescue of an estimated 3.5 lakh distressed middle class home-buyers, the government on Saturday announced Rs 20,000 crore fund to help real estate developers complete projects that are stuck on account of "last mile" cash shortage.
Union Finance Minister Nirmala Sitharaman said Rs 10,000 crore towards the special window will come from the government and "roughly same amount" from other investors, like LIC and sovereign funds.
“The objective is to focus on construction of unfinished units,” Sitharaman told reporters in New Delhi.
The government will make offshore borrowing easier for affordable housing schemes, she said.
This was the third time in two months that the finance minister announced a raft of fiscal measures to boost demand at a time when economic growth has dropped to a six-year low.
However, some housing industry consultants said the fund, which excludes projects that are deemed non-performing assets or in bankruptcy proceedings, was too narrow in its scope.
“The stressed fund is not going to have a significant effect as not many projects are likely to qualify. I believe that from the roughly 5,000 projects that are stuck at that stage only 200-250 of them will make the cut,” said Pankaj Kapoor, chief executive of real estate rating and research firm Liases Foras, to Reuters.
"This is definitely a great move to support the sector given it has a substantial contribution to the country's overall GDP. It is definitely the need of the hour. It would be more beneficial if they additionally allow restructuring of debt to ease the liquidity crunch," said Ashok Mohanani, Chairman, Ekta World and Vice-president, NAREDCO Maharashtra.
An estimated 8.5 lakh home buyers are yet to get delivery of their units as hundreds of projects across the country are delayed due to liquidity crunch and demand slowdown, a PTI report said.
However, this scheme will give relief to only about 3.5 lakh such home buyers as projects of developers like Amrapali, Jaypee Infratech, Unitech and host of others are either facing bankruptcy or have been declared NPAs (non-performing assets) by lenders.
The last mile funding has been envisaged for 'affordable' and 'MIG' homes, said Niranjan Hiranandani, Founder & MD, Hiranandani Group and National President, NAREDCO and Sr VP-Assocham. "There is a need to change the definition of ‘affordable housing’. At present, the Government of India considers a unit with a price tag of Rs 45 lakh as ‘affordable’. We need to remove the price-cap while defining ‘affordable housing’ 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," he said.
A crisis at one of the country's biggest non-bank finance companies in September, at a time when the banking system was jostling with $10 billion stressed loans, pushed India into a lending crisis, hurting investment and consumer spending.
This was exacerbated by a slowdown in its automobile sector, which pushed the once-buoyant economic growth rate down to 5 percent for the three months ended June 2019.
Asked about the fate of home buyers in Delhi-NCR who are stuck in bankruptcy-bound realty firms, Sitharaman said the insolvency proceedings have started in these projects and the issue would be resolved under the Insolvency and Bankruptcy Code (IBC).
She stressed that home buyers have already been made financial creditor under the IBC and they would get their claim.
"The objective (of this fund) is to focus on construction of unfinished units. The government, on the lines of NIIF, can contribute to the fund while rest of the investors would be LIC and other institutions and Private capital from banks/sovereign funds/DFIs (development financial institutions) etc," she said.
The finance minister also said the fund would be set up as a Category - II AIF trust and will be professionally run with experts from housing and banking sector.
Sitharaman said the eligible builders can seek funding from this special window.
The realty sector expects the government to 'address concerns related to demand creation.," said Chintan Sheth, Director, Ashwin Sheth Group.
In April this year, property consultant Anarock came out with a report that suggested that around 5.6 lakh housing units (worth Rs 4.5 lakh crore) that were launched in 2013 and before in seven cities were running behind the delivery timelines.
Last month, JLL India said that as many as 2,18,367 housing units valuing Rs 1,55,804 crore are delayed and at various stages of construction in the seven cities -- Delhi-NCR, Mumbai, Chennai, Kolkata, Benagluru, Hyderabad and Pune.
Besides stressed assets fund, the government announced the relaxation of ECB (external commercial borrowing) guidelines for affordable housing to facilitate financing of home buyers who are eligible under the PMAY (Pradhan Mantri Awas Yojana), in consultation with the Reserve Bank of India.
To boost housing demand, the interest rate on 'House Building Advance' would be lowered and linked with the 10 Year G Sec Yields.
Government servants contribute to a major component of demand for houses. This will encourage more government servants to buy new houses, the finance minister said.
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