The real estate sector, hit by a liquidity crisis, sluggish sales and debt trap, is seeking an emergency lifeline from the government that has announced several measures, but the actual implementation of these steps is yet to gather pace.
Realty developers have been expressing concerns over the slowness at which things are moving despite the announcement of setting up an Rs. 25,000-crore fund to support the completion of stuck housing projects across the country.
“The government had first announced setting up of this fund in September and expanded its scope in November while relaxing key conditions, but the ball is yet to start rolling,” said one leading realty developer who wished not be identified. The sector is hoping that the recent measures, including setting up of a distress fund, would help it get out of the crisis that it finds itself in, and wants the government to show some urgency rather than stick to announcements.
“With slide in GDP growth rate, the government has introduced a slew of new fiscal policy measures aiming to reinforce confidence by slashing corporate tax rate in order to boost private sector investment, announced AIF as a stressed funds provided for the revival of stalled projects,” said Niranjan Hiranandani, national president of realtors’ body, the National Real Estate Development Council (NAREDCO).
But he pointed out that the key to its success lies in the quick execution of these measures which will not only boost the sluggish sector but will kick-start the economy as well.
“While the last-mile funding is good for stuck housing projects, the sector as a whole needs support. Sales are vanity, profit is sanity and cash-flow is the reality for us. We are not asking for subsidy or cash (funds), we are asking for time. We are sitting on a (debt) bomb which can explode any time,” said Jaxay Shah, chairman of the Confederation of Real Estate Developers Association of India (CREDAI). “We are on the cliff and therefore need support quickly.” Indian property sector’s debt exposure, that continues to be the biggest stress factor for the segment, stands at $93 billion including advances by non-banking finance companies (NBFC) and housing finance companies, showed recent data from ANAROCK Property Consultants.
Of this, about $21 billion is under some pressure but has the potential to get resolved with quick steps. In fact, the stress on this segment of the debt is largely on recovery of interest and not on the principal amount. However, $14 billion, or about 16%, is under severe stress.
According to recent media reports, the central bank is likely to weigh proposals from the government to allow a one-time restructuring of realty developers’ debt. Hiranandani reckons that apart from the positive measures initiated by the government, the Indian economy needs more measures such as the restructuring of bad loans to avoid companies with positive net worth turning negative and becoming NPAs due to short-term liquidity crisis.
“One-time rollover, as done during the Lehman crisis in 2009, will be a right move to resurrect the economy,” Hiranandani said.
In September, the government had announced a last-mile fund with a size of Rs. 20,000 crore which was expanded by another Rs. 5,000 crore in November. The special funding window is expected to now accommodate more stalled projects as the eligibility criteria has also been relaxed to cover even projects that are classified as non-performing assets by lenders and those that are facing bankruptcy proceedings at the National Company Law Tribunal (NCLT), provided they are not referred to liquidation.
According to government estimates, around 458,000 housing units across 1,600 stuck projects are likely to benefit, against an earlier estimate of 3 lakh units.
“While the revisions in eligibility criteria appreciably expand the project coverage under the fund, especially given the large number of stressed projects which have been referred to NCLT or classified as NPA already, our initial concerns on the adequacy of the fund, the efficacy and timeliness of implementation, and demand risks for the unsold inventory associated with these projects remain,” said Shubham Jain, senior vice president and group head at ICRA.
As per the rating agency’s estimates, about Rs. 35,000-45,000 crore would be required to fund the completion of the revised quantum of 458,000 eligible dwelling units. Thus, even the enhanced fund size of around Rs. 25,000 crores may be insufficient to cover construction costs for all the eligible houses.
Moreover, while some clarity has been provided on the modus operandi of the fund, with the same being created as a Category-II AIF managed by SBICAP Ventures to provide priority debt funding to the eligible projects, the nuances of the final investment policy and its impact on project selection will be a key lookout area.
The government, in its efforts to revive the economy, is looking to provide relief to the housing sector, and eventually homebuyers, who have been waiting to take delivery of their homes by setting up this distress fund. Realty developers and industry observers believe that while the intentions are good, the government needs to set the wheels in motion as early as possible
News Source: Economic Times, Url: https://bit.ly/2t1eecb