Govt Announces Rs 25,000-Cr Relief Package For Stuck Housing Projects

In a move that would possibly help India’s liquidity-starved residential real estate regain some of its past glory, the government on November 6, 2019, announced a Rs 25,000-crore bailout package for the sector. The announcement comes at a time when the centre is busy launching measures to revive the economy after growth hit a six-year low of five per cent in the April-June quarter of the current financial year. Finance minister Nirmala Sitharaman made the announcement after a late evening cabinet meeting, chaired by prime minister Narendra Modi on November 6, 2019.

Modifying its mid-September plan in order to extend the benefit to a larger number of incomplete homes, the government has said the fund could also be utilised for projects which have been declared non-performing assets or are facing insolvency proceedings. Projects facing litigation in higher courts would, however, not get funds from the AIF. The government has also capped the highest funding of a single project at Rs 400 crore.

Housing projects in the Mumbai Metropolitan Region where the individual unit price is less than Rs 2 crore would be eligible to get funds from the AIF. In other megacities, including the Delhi-National Capital Region (NCR), the eligibility amount has been capped at less than Rs 1.59 crore per unit. In other cities, the price has been kept under Rs 1 crore per unit. The government has capped the size of units at 200 square metre. 

The government has won plaudits from the builder community over the announcement.

“The announcement will help a lot of stuck projects, which are at a good construction stage but have got stuck due to lack of project finance or adequate sales. This will help first-time homebuyers, who have invested in units worth less than Rs 1 crore,” says Parth Mehta, managing director, Paradigm Realty.

"This stimulus package will bankroll the stalled projects in the affordable and mid-income housing segment and keep the needle moving in the micro markets. It will also revive the demand for construction materials and assuage the stress in other major sectors in the economy," says Rohit Poddar, managing director, Poddar Housing and Development.

While the government will provide Rs 10,000 crore for the alternative investment fund (AIF), which is likely to benefit as many as 1,600 stalled housing projects consisting of 4.58 lakh housing units, public lender State Bank of India (SBI) and state-run insurer Life Insurance Corporation (LIC) would together provide Rs 15,000 crore. The centre expects the fund size to increase in time as the sovereign and pension funds are likely to participate in the AIF.

Delay in projects has adversely impacted buyer sentiment in the past few years, resulting in home sales number taking a hit on that count. Data available with PropTiger.com show that home sales fell 25 per cent in the July-September quarter of the financial year 2019-20 (FY20) when compared to the levels seen in the same qua quarter last year. Along with other factors, liquidity issues have also kept builders grounded, severely affecting new project launches.  New launches fell by 45 per cent annually in the quarter ending September, data show.

Apart from proving a boost to the residential real estate, the government move is also likely to generate employment as well as revive demand of cement, iron and steel industries.