The much-awaited package for housing and real estate is finally here. The main element is a Rs 10,000 crore stressed asset fund into which the government hopes to attract another Rs 10,000 crore from other entities like the Life Insurance Corporation (LIC), National Investment and Infrastructure Fund (NIIF), and private players.
The fund will be used to give last mile loans to stuck real estate projects, which are at least 60 percent complete and which are not NPAs (that is their developers haven’t defaulted on bank loans) or which aren’t before the bankruptcy courts (i.e the National Company Law Tribunal). Finance minister Nirmala Sitharaman said the move is intended to complete the 3.5 lakh incomplete dwelling units in the country.
Besides this fund there are a few sops like relaxed external commercial borrowing (ECB) guidelines.
Now what did the industry make of it? Keki Mistry said the fund would do a world of good, but wanted projects that have turned NPAs to also be eligible. Primarily it is these that are stuck for last mile funding, because in these cases, a new loan is a non-performing asset (NPA) from the day it is sanctioned, he pointed out. That said Mistry welcomes the idea of such a fund and said HDFC will participate in it as an investor. He also pointed out that the fund could be leveraged and hence the kitty could be increased.
Department of Economic Affairs secretary Atanu Chakraborty said rules will have to be framed about how senior and secured these loans would be. When asked if this fund would be up and running by this calendar year, Mistry said it should start financing its first loans this financial year.
Samir Jasuja of Propequity said, the total stuck homes are close to 5 lakh and are worth about Rs 3.3 lakh crores. The just announced fund will help barely 5 percent of these.
Mistry however said that many incomplete projects in the country have already been considerably financed and constructed and may require only Rs 70-80 crore each for completion.
Anuj Puri of Anarock called the step a major boost to real estate and “a festive treat for lakhs of home buyers”. But, like Mistry, Puri also worried that leaving out loans that have become NPAs will prevent many stuck home buyers from benefitting.
Niranjan Hiranandani, president of National Real Estate Development Council (NAREDCO), also said most of the incomplete homes in the National Capital Region (NCR) may not benefit since they are either NPAs or in NCLT.
He also said the problem is the definition of Rs 45 lakh as the cap for defining “affordable or middle-income”. He wants the cap removed. Mistry pointed out that affordable housing has not faced a demand shortage. It is premium homes that are stuck for want of buyers.
Short point, the fund, while a big relief for many incomplete projects, will not be of use to buyers and investors of groups like Jaypee and some of the stressed Mumbai builders.
The ECB relaxations will also help only triple A Companies like HDFC.
The move may cheer up bank, housing finance and realty stocks on Monday, but any continued rally will depend on how quickly the fund is up and running. These stocks may also sell off after a gap up, because the package announced today is not a panacea for all the stuck real estate projects, certainly not for the premium home builders. But the sector is still better off than it was before the announcement.
Key measures announced:
- Special fund for middle income housing being created for last mile funding
- Projects that are 60 percent complete shall get last mile funding through special window
- Projects to be eligible should not be NPAs or before NCLT
- Government to give Rs 10,000 crore for housing fund, Rs 10,000 to be raised from other entities
- Interest rates for house building for government staff to be linked to 10-year yield
- ECB guidelines will be relaxed for affordable housing under PMAY