Stress fund can help resolve last mile funding crisis
To help home buyers stuck with under construction homes in projects that have remained unfinished, the Indian Government announced a special window to provide last mile funding for housing projects which are non-NPA and non-NCLT and are net worth positive in affordable and middle income category.
“The Hon’ble Fin. Min. who made the announcement said that NIIF and LIC will invest in the new housing fund; as also that 3 and half lakh schemes to be targeted for the special housing funding window.
The announcement of Rs 20,000 crore fund to help stuck affordable housing projects is similar to the concept of a ‘stress fund’ to help bail out incomplete projects that have been stalled owing to problems of liquidity. This is something which we, at NAREDCO, have been speaking about since the last 18 months. Obviously this is welcome, as it will ensure many affordable and MIG projects stuck because of last mile funding requirements – subject to not being under NCLT or NPA – will be able to get completed.” shared Dr. Niranjan Hiranandani, President (Nation), National Real Estate Development Council (NAREDCO), which works under the aegis of Ministry of Housing & Urban Affairs, Government of India as also Vice-President, ASSOCHAM
The Hon’ble Fin. Min. announced two riders to the stress fund, and the industry holds its breath on both. First she mentioned the fund will start with Rs. 20,000 crore; we hope it will be enhanced. Secondly, she said this is not for projects which are already under NCLT and NPA, given that delayed projects in both these categories are already undergoing due process under existing set-up. For delayed and stalled projects – for example in the NCR – this will be a major problem, given that most of such projects are under NCLT and NPA, and will not get the benefit of this stress fund. This announcement will not solve the problem of delayed/ stalled projects and affected home seekers in locations like the NCR.
Manju Yagnik, Vice Chairperson Nahar Group and Vice President NAREDCO (Maharashtra) on the recent announcements made by the Finance Minister, Nirmala Sitharaman said, “ After two consecutive announcements to revive the economic slowdown of the nation, there is a movement for the real estate sector, with the “Going for Growth” initiative. Having announced an addition to the ECB norms for the affordable housing sector, the government is now relaxing guidelines for external commercial borrowings in order to facilitate financing to all potential homebuyers across the country which is promising. This should showcase movement on the stalled projects. A special window is now to be bought into place to provide funds to non-NPA or non-NCLT stalled projects which are almost completed but are stuck due to lack of last mile funds. An indeed smart move on the governments part by allocating professionals from the housing and banking sector to run this window”
Secondly, the focus has also been on demand creation, with the announcement of House building advance to help government officials buying homes. This is a big sector that buys housing, these will be incentivized to buy homes, which is positive. Taking this further, there are other segments of home buyers who also need to be incentivized, these also need to be given a positive boost.
Effectively, the Hon’ble Fin. Min. has made a beginning on both, the demand side as also the liquidity side, which augurs well for Indian real estate, but it would be welcome if the proposal is further enhanced.
Relaxing the External Commercial Borrowing (ECB) guidelines to facilitate financing home buyers who are eligible under the Pradhan Mantri Awas Yojana (PMAY) is a positive announcement.
Similarly, the announcement that professionals, and not government officials will operate special funding window for housing is welcome.
The last mile funding has been envisaged for ‘affordable’ and ‘MIG’ homes. 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.
At NAREDCO, we have long been advocating increasing the price-cap of Rs 45 lakh to Rs 1 crore, so as to allow buyers of these homes to benefit from Government rules concerning affordable housing, which in turn, could spur buying and resuscitate a stagnant housing market.