RS 25,000 CRORE FUND PANACEA FOR AILING REALTY SECTOR
The talk of the town this month has been the announcement of Rs 25,000 crore fund for stalled real-estate projects across the country. The jury is still out on the effectiveness of this boost by the government and if the measure is too little too late.
T he Cabinet on November 6th gave its nod to provide priority debt financing for completion of stalled projects in the affordable and middleincome housing segment. While, the government will pump in Rs 10,000 crore into an Alternative Investment Fund (AIF), the State Bank of India (SBI) and Life Insurance Corporation (LIC) will contribute Rs 15,000 crore to the fund. The fund with government as sponsor will be set up as a Category-II AIF debt fund registered with SEBI and will be managed by SBICAP Ventures Ltd as the investment manager.
The fund will also seek investments from private investors such as financial institutions, sovereign wealth funds, public and private banks, domestic pension and provident funds and global pension funds. India’s real estate sector started weakening in 2017 after demonetisation, staggering further in 2008 with the IL&FS crisis and crippling of NBFCs and HFCs. This year, the liquidity crunch deepened as housing sales declined by almost 11 per cent in the first half of 2019-20. So, the government infusion of funds couldn’t have come at a better time than this.
IS THE STRESS FUND ENOUGH FOR REVIVAL
Even if the project is a NPA or under arbitration of NCLT, it can be covered under this scheme provided it has not been announced as liquidation worthy. The main criteria to be covered under this scheme is that the project’s net worth must be positive. up the stress fund is the step in the right direction, but taxation reforms are necessary if government wants to revive the ailing real estate sector. Talking to the media he said, “The taxation structure for the real estate industry is not ideal. Real estate developers have to pay various forms of taxes including stamp duty and GST. In fact, Indian Stamp Duty charges on property registration in the country are significantly higher than many other countries.”
Nayan Shah, President, CREDAI-MCHI giving a critical analysis stated, “The government has finally acknowledged that something drastic needs to be done for real estate as 270 or more industries are reliant on real estate alone. Having said that, the current provision applies to projects which have been declared NPA or referred to NCLT with the condition that they are net worth positive. But, if a project is NPA, it means that there is no net worth positivity in that project. Instead the government should have made this funding open to those projects which had a positive cash flow because such a project definitely has the strength to survive. The liquidity support will put the project back on track. Also, the government with the help of RBI should allow a onetime restructuring of all real estate loans.”
The Rs 25,000 crore fund forms only a small fraction of Rs 4,64,300 crore worth unfinished realty projects in seven top cities alone. But, government is expecting investments from sovereign and pension funds in the emergency fund in due course. The timeline for setting up this fund and its actual implementation is the key to success.
Jaxay Shah, CREDAI National Chairman said, “It’s a very welcome change from the initial announcement as the criteria for eligibility now is net worth positive projects that will also include incomplete projects which are NPA or in NCLT. Quick deployment of money and efficient decision making for qualification of projects will solve the long pending problems of home buyers.”
Dr. Niranjan Hiranandani, President, NAREDCO and MD, Hiranandani Group felt that the positive impact of the move will be generation of employment, revival of demand for cement, iron and steel industries and other major sectors of the economy. “The announcement is a win-win for both home buyers and developers, but the devil is in the detail which is quick implementation.”
Rahul Grover CEO, SECCPL considers the move a much needed relief measure. “Bailouts are not aimed at the core systemic issues, but tend to have a multiplier effect. The immediate positive impact would be the net gain of buyer’s sentiment, unlocking value of stalled projects and the systemic change in mind-set in the banking industry towards realty sector. Given that the upper limit per project is Rs.400 crores, the criteria for selection and the speed of implementation would be the key determinant on how many middle-class home buyers are positively impacted by the fund.”