While it is hard to estimate how far Rs 20,000 crore can go, Kotak Institutional Equities (KIE) points out there are currently 4.1 lakh apartment units costing less than Rs 45 lakh.
The last mile funding for stalled housing projects will not solve the real problem in the real estate sector, but will nonetheless help.The Rs 20,000 crore fund, to be set up on the lines of the National Infrastructure and Investment Fund (NIIF), will be used to complete affordable and mid-category housing projects. The government’s contribution would be Rs 10,000 crore, with sovereign investors, and the likes of an LIC, expected to bring in the rest.
The reason why the financial assistance may not help resuscitate much of the sector is that most housing projects, today, are stressed. The scheme, however, is only meant for those projects that have not been admitted to the NCLT for a resolution process, and those where the loan exposure hasn’t gone bad. Moreover, construction should have hit 60%, which is probably not the case for the majority of projects. The point is that, if the project is net worth positive, and 60% of it is complete, the promoters should not have trouble borrowing anyway. It is the promoters with weaker balance sheets, those unable to access conventional sources of funding, who need help.
While it is hard to estimate how far Rs 20,000 crore can go, Kotak Institutional Equities (KIE) points out there are currently 4.1 lakh apartment units costing less than Rs 45 lakh. It is not clear how many of these have progressed to the extent of 60%, but KIE believes Rs 20,000 crore should be enough to fund 40% of the construction costs for about 2.5 lakh units.
To be sure, the government doesn’t want to be bailing out every errant builder. Neither does it want be trapped in litigation. Also, it is understandably more concerned about affordable homes—costing below Rs 45 lakh—and mid-income housing rather than luxury apartments. Nonetheless, given how a revival in the real estate sector—especially housing—can make a big difference to the economy, the government could have looked at a much bigger level of financial support, and also enlarged the scope of the fund. For instance, it could have included some stressed projects, which have not made it to the NCLT, but where the loans may have gone bad, by working with the banks to rope in a new promoter. The NCLT process, unfortunately, is time-consuming, and the assets end up being sold to buyers, with banks taking massive haircuts. Intervening before a company is admitted to the NCLT will help projects fetch their right value, and banks, too, would recover more in quicker time. A bigger fund—at least Rs 40,000 crore—with a larger contribution from the government is needed, and the conditions need to be relaxed. The returns from this investment can be very high.