The government has announced plans to set up a Rs 20,000 crore stress fund to revive real estate industry, while it is a step in the right direction real estate data and analytics platform Prop Equity’s estimates requires approximately Rs 90,000 crores will be needed to cure the housing sector of its ills.
The government's move is meant to revive stalled projects in the affordable and middle income housing category. This special window will provide last mile funding for housing projects which are non-NPA (non-performing assets) and non-NCLT (National Company Law Tribunal) projects and will focus on unfinished projects. It is a very
positive move by the government for the revival of the real estate sector in the country.
It is also important to point out that the government really had no role to play in the creation of the current crisis. The impact of the goods and services tax (GST) and demonetisation on the stressed projects discussed in this release was minimal as these projects were in the affordable and mid category and thus cashless as they required maximum housing finance.
The government also reduced the GST last year to provide relief to the developers and to the sector. In fact, the current crisis has been a consequence of key causes such as lack of execution capability of developers, oversupply of inventory, excessive land banking, lack of understanding of the demand supply dynamics, unjustified price appreciation, and lack of social and physical infrastructure in emerging markets. The crisis today has further escalated due to the current non-bank finance companies (NBFC) crisis.
1. Projects to be completed by December 2021, i.e within 2 years 2. Only Apartments, Ind Floors, and Villas are considered 3. Hold projects details provided separately 4. Current price of the projects <= MMR <= 7500, Gurgaon <=6000, Ahmedabad <=4000 and remaining Tier-1 cities 5000 and remaining tier-2 cities <= 3000 psqft considered 5. Tier-1 - Ahmedabad, Navi Mumbai, Bengaluru, Kolkata, Chennai, Faridabad, Ghaziabad, Greater Noida, Gurugram, Hyderabad, Mumbai, New Delhi, Noida, Pune, Thane Tier-2 - Agra, Amritsar, Vadodara, Nashik, Bhopal, Coimbatore, Dehradun, Gandhi Nagar, Chandigarh, Bhiwadi, Bhubaneshwar, Vijayawada, Indore, Jaipur, Kochi, Ludhiana, Mangalore, Mohali, Mysore, Nagpur, Goa, Panipat, Raipur, Sonepat, Surat, Trivandrum, Lucknow, Guntur, Visakhapatnam 6. All Prices and sizes are considered on Super Area
As a result of the cumulative impact of all the above factors, this crisis according to Prop Equity’s estimates requires approximately Rs 90,000 crores for resolution. In addition, to this many other areas will need to be addressed to resolve the crisis in totality. The details of this value are explained as under:
There are approximately 13.8 lakh units in the mid to affordable category that are approximately 60 percent complete and due for completion in the next two years.
As per Prop Equity’s estimates, 7.4 lakh units are stressed and in need of aid.
It is important to note that of these 4.4 lakh units of the 13.8 lakh units are already on hold due to lack of funds and have been delayed for more than 5 years. Most of the developers who are responsible for the completion have already been taken to NCLT or are NPAs with the banks. Hence, these units do not qualify for this aid.
Additionally 3 lakh more units will be stressed out of the remaining 9.4 lakh units that are under construction and more than 60 percent complete and scheduled to be completed over the next 2 years.
Of these approximately 7.4 lakh units, over 80 percent lie in tier 1 cities where total cost of construction for a unit is much higher at approximately Rs 2,500 per sq ft. PropEquity has estimated a balance i.e. last mile funding of approximately 800 psf out of the Rs 2,500 psf will be required to complete the unfinished projects. The weighted average size per unit is 1,500 sq ft. Thus approximately Rs 12 lakh per unit will be required to complete each unit.
Thus, if you take the above calculation into account, you arrive at a Rs 90,000 crore fund requirement for a total of 7.4 lakh units that are stressed.
The current fund allocated when fully utilised will aid in completing approximately 1.6 lakh units, of which approximately 55 percent are sold/absorbed. This translates to approximately 91,000 units bought by consumers getting relief.
The need for correct fund allocation
In order to identify the most deserving projects it is necessary that all the projects that are eligible for this fund allocation are accurately identified and analysed so that the maximum consumers derive the benefit from this aid. PropEquity has assessed the data of housing units priced in the affordable and mid housing category across tier 1 and tier 2 cities.
With the objective of providing maximum benefit to the consumers, in addition to providing the funding, it is crucial for the government to analyse the deserving projects which will the aid on various parameters including absorption in each project, developer track record, demand supply dynamics to name a few.
Samir Jasuja, founder and managing director, PropEquity said: "The government has been magnanimous and sensitive in its allocation of the stress fund and in adopting this crisis which got created due to many factors that were well beyond the government’s control. This is definitely a positive move and we hope that the government will take more steps in the future to help the industry tide these turbulent times”In summation, the stress fund will provide the much needed reprieve to the selected projects through a process of effective allocation. In addition, there will be a requirement for more such boosts if the real estate distress needs to be eradicated from the root.