The government’s booster shot for the real estate sector failed to impress investors. On the contrary, most realty shares fell Monday, and the Nifty Realty index ended the trading session 1% lower, or about double the rate at which the Nifty 500 index fell.
One would have reckoned that the last-mile funding of ₹20,000 crore announced to resurrect real estate projects should have helped developers. But as always, the devil is in the detail. Considering that funding would be offered only to affordable housing projects (units below ₹45 lakh), it eliminates most companies in the listed universe. Firms such as DLF Ltd, Sobha Ltd, Oberoi Realty Ltd and Godrej Properties Ltd have only recently diversified into affordable housing. And, they do not have significant number of stranded projects in the affordable housing category.
Perhaps investors would have been appeased with some tax incentives. Analysts at Kotak Institutional Equities said: “The Street was hopeful that the economic booster would help in reducing purchase cost (through tax incentives) for premium segment of housing or address concerns on stressed projects that have been stranded for lack of funding."
Again, the caveat that the projects should not be non-performing assets, or referred to the National Company Law Tribunal, and should be at least 60% complete, can complicate matters.
According to Anarock Property Consultants Pvt. Ltd, a large number of stranded units will be excluded due to these criteria and the affordable housing caveat.
According to Motilal Oswal Financial Services Ltd, only about 15-20% of outstanding projects can get relief. Besides, the brokerage said, “several key issues remain such as the timeline of the implementation of this scheme. If the fund starts after four to six months, many more projects could slip into NPA, thereby making them ineligible for funding. Also, it is unclear if lenders have to take a haircut."
Meanwhile, it must be noted that listed realty developers have deleveraged their balance sheets considerably in recent years, and concerns about their indebtedness have abated. The table (from Kotak Institutional Equities Research Ltd) shows that the share of listed companies’ debt as a percentage of total industry debt has halved from 14% in FY15 to 7% in FY19.
To be sure, the government’s latest measures for the sector would improve demand for some affordable housing and mid-income housing projects. “It may help aggrieved buyers get possession of their homes if the stranded projects are completed before the festive season," said Anuj Puri, chairman, Anarock. But these gains will be limited to some companies in the unlisted space. The relief that companies in the listed universe were looking for would have been in terms of a revival in sales in the categories they cater to, which still looks difficult to come by.