To ensure that the stuck projects are delivered, specialist asset management firms have entered the real estate business.
Stuck housing projects have long been a problem. In recent years, the government has announced funds such as a special Rs 10,000-crore window for last-mile financing of distressed affordable and mid-segment homes and a Rs 25,000-crore alternative investment fund (AIF) aimed at providing developers with unfinished projects to ensure buyers receive homes. However, only around 60 per cent of the projects meet the guidelines of these steps, leaving a huge number of units feeling high and dry. Now, to ensure that the stuck projects are delivered, specialist asset management firms have entered the real estate business.
Let’s take the hypothetical situation in the last stages of completion of a developer’s residential project in Delhi NCR, whose original completion date was December 2020. Initially, construction was funded by a loan from a Non-Banking Financial Company (NBFC), and 60% of the approved amount had already been disbursed. Today, extreme liquidity stresses are shaking the NBFC, and the project cannot be funded to completion. Sales have been lacklustre due to customers’ growing preference for ready-to-move or nearly completed projects. Until the project is approaching completion, sales are picked up by the same coin. Many existing buyers have purchased units with building-related payment plans. Since the project is stalled, they’re not making any further payments. The developer’s ability to repay the debt was depleted, and the project is now classified as a non-performing asset (NPA).
After 2013, there are approximately 4.5 lakh units that are stuck/delayed in major cities, and these projects need some support, and buyers are also expecting respite. A new ray of hope has entered the market with the entry of professional asset management firms. After checking the financial and operational viability, these companies evaluate the projects and provide capital for those stuck projects, and then assume the role as needed. In whatever verticals they need their professional intervention, the asset management companies support the real estate companies.
The DM model is the prevailing model for these asset management companies, where companies act as development managers for developers and landowners in exchange for a share of revenue, a profit share, or a management fee. Right now, the demand is robust all over the country as people are looking for projects that suit their pockets. In these asset management companies, the expert team of professionals increases the realtors’ sales & marketing efforts and gives them the desired results in record time. The sector needs a research-oriented approach; these businesses are equipped with a robust network of professionals to assist beleaguered developers.
At the end of the tunnel, homebuyers stuck within such units will continue their wait for the light. Professional firms will provide relief to aggrieved homebuyers who have been anxiously waiting for their homes. Many NBFCs have come to the fore to help the stuck projects such as Lumos Alternative Investment Advisors, and MPowered; developers such as NCR-based Alpha Corp plan to invest in stressed projects. That said, improving overall buyer sentiments will go a significant way and help fix the supply side in the real estate sector.
(By Prasoon Chauhan, Founder & CEO, BlackOpal)