Govt presses ‘revival’ button to ease real estate distress

India’s housing sector may finally witness a silver lining as the government makes concerted efforts, along with financial institutions, to ease distress.

The ₹25,000 crore package that the government approved on Wednesday, addresses the key pain point of stalled residential projects, in a sector that has now witnessed a five-year long slowdown. Besides, the Supreme Court setting a finite timeline of 90 days to complete the resolution process of Noida-based developer Jaypee Infratech Ltd also brings relief to buyers of over 20,000 flats that are yet to be built.

Keki Mistry, vice-chairman and chief executive, HDFC Ltd, the largest non-bank lender to housing, said given that a huge number of projects are stuck, there could be two ways to revive them. The government’s plan to set up an alternate investment fund (AIF) to revive projects that are 60% completed, would be one.

“...But the second way is to encourage banks, NBFCs and housing finance companies to provide incremental funding to projects, by not classifying them as non-performing loans. No one will finance a project that will be classified on their books as a NPL. Otherwise, these projects will remain stuck forever,” Mistry said.

The dearth of last mile financing has been a critical issue in projects getting stalled, aggravated by slow sales and low customer payments, because homebuyers today don’t want to buy under-construction projects due to the risks involved.

However, the current revival package for 1600 projects across major cities, is a good starting point, said developers and analysts.

By including projects that are non-performing assets and even if they are admitted in national company law tribunal (NCLT), the government has now expanded the scope and eligibility of more projects that can be included under the scheme.

So far, the government’s main focus has been on low-income housing, in the ₹45 lakh and below category. But by including homes priced upto ₹1.5-2 crore in Mumbai and National Capital Region (NCR), the two largest property markets, the largest section of mid-income homes will stand to benefit.

“The finance minister has been extensively consulting with all sections of the industry since the Budget, which is a rarity because most discussions usually happen before it. These measures for real estate are the best possible solutions for the sector but we have proposed additional incentives like promotion of rental housing and modifying the GST rates,” said Rajeev Talwar, CEO, DLF.

The move by the finance minister is likely to become a game changer as it now includes projects, which are NPA or are under NCLT, a major pain point that was left unaddressed in the September announcement, said analysts.

"...It has come at an opportune moment when the residential market is tackling the headwinds from the trickle down impact of the series of reforms and economic slowdown. While it will boost consumer sentiment and enhance confidence, it will act as a strong catalyst in pushing the sales velocity,” said Samantak Das, chief economist and head of research and REIS at property advisory JLL.

Chintan Patel, partner and leader-building, construction and real estate, KPMG in India said while the government has taken a step in the right direction, it would be interesting to understand specifics in terms of tenure of investment, costs of funds to the developer, security package etc.