FM Nirmala Sitharaman announces Rs 10,000 cr stress fund for stuck housing projects
In a major boost to realty sector, FM Nirmala Sitharaman announces Rs 10,000 cr stress fund for stuck housing projects in India. She announced on September 14 a special window that will provide last-mile funding to in affordable and middle-income category for non-NPA and non-NCLT housing projects.
Announcing a slew of measures to revive the real estate sector, Nirmala Sitharaman said ” The size of the fund would be Rs 10,000 crore and would be contributed by the government of India and roughly the same amount by outside investors.” She however, clarified that only those ongoing housing projects that are non-NPA and are not facing bankruptcy proceedings under NCLT in the affordable and middle-income category will be part of this.
The real estate sector, which creates millions of jobs, has been under major stress over the past few years. The sector has witnessed weak sales and huge unsold inventory in the recent past. Therefore, developers and promoters in the sector have been seeking a bailout from the government for some time now. “We have had consultations with home buyers, who have paid their advances and sitting without knowing what to do, and promoters that are sitting with no money to further their projects,” FM had said earlier.
Nirmala Sitharaman said this stress fund will focus on completion of unfinished units of affordable and middle-income housing projects. The fund will be managed by professionals, she said. Here are takeaways from FM’s new measures to boost the housing sector: Stress fund of Rs 10,000 crore to boost the housing sector
In a major boost to stuck projects in the middle and affordable housing segments, the government has set up a stress fund of Rs 20,000 crore for completion of stalled projects. Rs 10,000 crore to be contributed by the government of India on the lines of the NIIF while the rest of the investors would be LIC and other institutions and private capital from banks, sovereign funds, and DFIs. However, the funds will not be applicable for projects facing bankruptcy proceedings in the National Company Law Tribunal.
The stress fund shall be set up as a category II AIF Trust and would be professionally run with experts from the housing and the banking sector. However, the fund will not cover the projects affected by NPA and NCLT issues. Only incomplete projects which are not facing bankruptcy proceedings will be included.
The stresse fund, which is to be used to provide finance to middle and affordable housing projects, will benefit around 3.5 lakh home buyers. However, the buyers stuck in bankruptcy-bound projects will get relief through the NCLT route.
Also Read: An Outlook Of The Indian Real Estate Sector In 2019
Relaxation of ECB guidelines
Nirmala Sitharaman announced that External Commercial Borrowing (ECB) guidelines will be relaxed for builders under Prime Minister’s affordable housing scheme, in consultation with the banking regulator. At a press conference in New Delhi, she said that the housing finance companies have been allowed to borrow funds from abroad at relaxed rules. These ECB relaxations will help housing developers obtain overseas funds.
House Building Advance
Besides this, Nirmala Sitharaman said the government has decided that the interest rate on house building advance will be lowered and also linked to 10-year G-Sec yields. She said this will primarily benefit government employees who make up for a major component of demand for houses. “This will encourage more government servants to buy new houses,” she said.
Focus on stalled projects
The government objective is to focus on the construction of unfinished home units that number around 3-3.5 lakh out of 8.5 lakh housing units across the country. This fund will provide relief to home buyers stuck in incomplete projects. As per Anarock research, NCR has the largest pile-up of stalled units at 1.18 lakh homes spread over 67 projects, with an overall value of Rs 82,200 crore. Of this, 83,470 units are already sold out.
The slowdown in the housing sector has put thousands of home buyers in a spot, as they continue to wait for the possession of their stuck projects. Therefore, developers and distressed home buyers had suggested to the government that a stress fund be set up for completion of stalled projects to bail them out.
Finance Minister Nirmala Sitharaman had met with the realtors’ industry bodies CREDAI and NAREDCO, and the home buyer associations, to discuss the issues concerning the real estate sector. During the meeting with FM Nirmala Sitharaman, the realtors representative bodies had expressed concern over the liquidity situation after the IL&FS crisis and poor sales. Moreover, they demanded that banks and NBFCs should be encouraged to fund projects.
The housing sector’s woes worsened with the liquidity crisis in non-banking finance companies (NBFCs) in the wake of defaults by IL&FS which were first reported in September 2018. Since then, NBFCs, which have been major providers of funding to developers in the recent past, have gone slow on lending, leading to cash crunch and project delays. The industry was expecting the government to address their concerns regarding liquidity crunch, slowdown in demand, and stalled projects.
The slowdown in the sector has also put thousands of home buyers in a spot, as they continue to wait for possession of their houses. There are several stalled projects in National Capital Region (NCR) and Mumbai under NCLT and NPA and will not get the benefit of this stressed fund.
The real estate sector relief package includes solutions for stalled housing projects for projects which could not be completed due to funding issues. Therefore, the new measures taken by the government to create stressed fund should help in providing impetus to the realty sector.
FM Nirmala Sitharaman announces Rs 10,000 cr stress fund for stuck housing projects
