Is the government’s bailout package for real estate enough to revive the sector?

Such in line with the announcements made by Union finance minister Nirmala Sitharaman in September, the cabinet on November 7 approved a Rs 25,000 crore special window to provide funding to stalled housing projects in a bid to revive the sector. According to the government, as many as 1,600 projects with 458,000 dwelling units will be covered under this. While the government’ contribution for this will be Rs 10,000 crore, the balance will come from the Life Insurance Corporation of India and the State Bank of India, besides sovereign wealth funds and pension funds. The units eligible for the special window will be the incomplete housing units worth less than Rs 2 crore in Mumbai; less than Rs 1.5 crore in Delhi-NCR (national capital region), Chennai, Kolkata, Bengaluru and Pune; and less than Rs 1 crore in the rest of the country.


The announcements could not have come at a better time. The Indian real estate sector-valued at Rs 8.3 lakh crore, as per the Niti Aayog’s February estimate-is in the grip of one of the worst slowdowns in a decade. A report by realty consultant Knight Frank India, published in July, estimates that unsold home inventories in eight key cities-Mumbai, NCR, Bengaluru, Chennai, Hyderabad, Ahmedabad, Pune and Kolkata-stood at 450,263 units in the first half of 2019. And although new launches in these cities were up by 21 per cent in the first half of 2019 (compared to the same period in 2018), sales rose just 4 per cent in the same period. The Mumbai Metropolitan Region had the highest unsold inventory, at 136,525 units in the first half of 2019. The NCR came in second with 130,000 unsold units, while Bengaluru was third with 85,387 unsold units. According to Anarock Property Consultants, housing sales were at 350,000 units in 2014 (the highest between 2013 and 2019), but fell to a mere 210,000 units in 2017, immediately after demonetisation. End-users perched on the fence, awaiting a favourable market, while investors backed out of the market entirely. Though there were some indicators of a modest revival in 2018, current trends indicate that sales are unlikely to rally back to their peak levels anytime soon.


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Industry honchos have welcomed the government’s latest decision. “The funds will be used to provide priority debt financing for the completion of stalled housing projects in the affordable and middle-income housing sector, providing relief to developers with unfinished projects while also ensuring delivery of homes to buyers,” says Niranjan Hiranandani, managing director, Hiranandani Group. A recent study by realty consultant JLL India showed that Delhi NCR contributed to more than 60 per cent of delayed residential units followed by Mumbai, constituting nearly one-fifth of the overall delayed units across the top seven cities in India.

A host of real estate players, including Jaypee Group, Amrapali, Ansal API, Raheja Developers and HDIL are currently in resolution proceedings with lenders under the National Company Law Tribunal (NCLT). This has left many home buyers in the lurch, with homes left incomplete and monthly instalments on bank loans due. Several buyers, especially in the NCR, approached the courts for reprieve and while court intervention has given some, albeit much delayed, assurance to buyers that their investments will not suffer and they will see a completion of their dream homes, it doesn’t augur well for the sector.

“This will be a win-win for home buyers and real estate developers, as it will help alleviate financial stress faced by home buyers who have invested their hard-earned money, while also releasing funds stuck in such delayed/ stalled projects for productive purposes,” says Hiranandani. “The fund will help nearly 1,600 stalled housing projects in the country, and it is positive that the aspect of NCLT/ NPA (non-performing assets) will not be a stumbling block to prevent stalled and delayed projects from approaching the fund,” he added. The positive impact of the move include generation of employment, revival of demand for cement, iron and steel industries and relieving of stress in other major sectors of the economy, he added.


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However, the fund’s size will not be enough to cover the entire problem. Some estimates say that the funds will address just six per cent of the total needs of the real estate sector. Also, the demand side is yet to be addressed. “The need of the hour is to stimulate demand among homebuyers, which itself would then provide cash in the hands of developers to finish off other stalled projects,” says Rajat Bahl, chief analytical officer at the Mumbai-based Brickwork Ratings. In fact, completion of these projects will only add to the already huge pile of unsold apartments to the tune of around 4.5 lakh units, though this problem is lesser in the affordable housing segment, he adds. The answer may lie in taking a leaf out of the negative interest rate mortgages being handed out by banks in Europe and that India should look at offering home loans on completed projects or projects getting completed in the next six months at discounted rates of two to four per cent. The subvention will need to be provided by the lenders in these projects and the government. “The moral hazard of bailing out the developers can be avoided by linking the subvention to price cuts being offered by developers to get their skin in this scheme,” he says.

In a research note, India Ratings, too, cautions about the possibility of a new inventory built-up following the government move: “With stalled projects coming on stream, the demand-supply imbalance is likely to worsen, and if overall housing demand does not witness a recovery, pricing pressure in the sector is likely to be exacerbated”. Furthermore, market consolidation in favour of grade I players might become protracted as supply from non-grade I players come on stream. Grade-I builders, according to the firm, are those who have a reputed brand name, significant market share, strong execution capabilities, robust balance sheet with high financial flexibility and are regulatory compliant.


It is obvious that only an economic revival can bring about a real change in the sector in addition to an ease in the flow of credit, lower taxes, faster clearances of projects, improvements in the ease of doing business, and lower input costs, among others. That, it seems, is not yet in the immediate horizon.