The government’s move to create a dedicated fund for stalled housing projects will act as a catalyst for the sector that has been facing severe liquidity crisis for the last few years, with the Mumbai Metropolitan Region (MMR) expected to be the biggest beneficiary. This is because projects here are more likely to meet the net worth positive and litigation-free criteria.
Liquidity could be cited as the single-biggest reason behind project delays in India and the Rs 25,000-crore lifeline in the form of an alternate investment fund (AIF) would change much of that, said Mani Rangarajan, chief operating officer of Elara Technologies, which owns real estate portals Housing.com, Makaan.com and PropTiger.com.
“Housing projects in MMR are more likely to meet the net worth positive and litigation-free conditions set under the AIF. This would mean a large part of the fund could be spent on completing projects in Mumbai, as it is an expensive market and the cost of project completion here would be comparatively lower than the ultimate price realisation. This would only help Mumbai’s case further,”
Rangarajan told FE.
The Union Cabinet had on November 6 cleared the structure of an AIF for the real estate sector with an initial corpus of Rs 25,000 crore, with more inclusive terms and a commitment to continue to provide more budget funds.
As per an analysis of the 10 prime residential markets, he said around 1,665 RERA-registered housing projects with more than 4.5 lakh housing units are delayed by over five years and are likely to see completion only after 2020. Of these, 880 projects constituting over 2 lakh units are in MMR. On the other hand, a total of 125 projects are delayed across Noida, Greater Noida and Gurugram, consisting of more than 1 lakh units.
“While the analysis does not point out the specific reason behind delay in these projects, majority of the projects have been stuck owing to liquidity crunch, delays in approvals, a periodic ban on construction activities and litigation,” he added.
Rangarajan said the biggest beneficiary of AIF could be the MMR housing market, which has more to do with the net-worth-positive state of delayed projects than their overwhelming numbers. This also has to do with the fact that a large number of delayed housing projects in the Delhi NCR would not meet the criterion to get funds under the AIF.
“Real estate developers in Noida owed the city authority a whopping Rs 10,200 crore in dues in 2017. The fact that outstanding dues may have doubled in the past two years casts serious doubts on their net-worth positivity. Additionally, many developers here, including Amrapali, Jaypee, Unitech and 3C Company, have been dragged into litigation over charges of delays and misappropriation of funds. The Centre has clarified that projects that are seeing litigation in courts would not be considered under the stress fund,” he added.
For a project to receive funding from the AIF, it has to be, among other things, net-worth positive, which means that the completion cost and outstanding liabilities of these projects should exceed the worth of the receivables and the unsold inventory in these projects.