Realty booster: Too little, too many pitfalls

Representative image.

The decision to announce Rs 25,000 crore worth of Alternative Investment Fund to revive stalled housing projects may have been welcomed by embattled realtors, but it can have pitfalls at multiple levels: it is too little and may prove to be disastrous for the debt market. 

While the government will act as a sponsor with its Rs 10,000-crore initial contribution to the category-II AIF, SBI and LIC will provide an additional Rs 15,000 crore towards the fund, which will be initially managed by SBI Caps through an escrow account.

It will also be registered with market regulator SEBI and will support all RERA certified projects.

This, in effect, puts the money, most of which will be funded by the investors and policyholders, at high risk – in the hands of the realtors who have already been facing stress in the recent past.

Many of the realtors have been going through insolvency lately.

Of the 2,542 companies that have gone through insolvency proceedings since 2017, 112 have been from the real-estate sector.

Not only this, many of the realtors, who have not been able to finish the projects to date, have been causing a lot of stress on the balance sheets of Indian banks.

This has led to analysts question the government over the fact that they are giving further debt to already stressed sector.

“Easy money is always welcome. That is what you are seeing right now,” an analyst wishing anonymity told DH.

The current package of Rs 25,000 crore is catering to 1,600 stalled projects only. Assuming that at an average these 1,600 projects build 100 units each, it in effect, would benefit 1.6 lakh home-buyers.

The figure makes up only 8.4% of the 19 lakh stalled homes in the top seven cities alone, according to data available with Anarock Property Consultants.

“The Government has limited resources to stretch to realty. Secondly, if we take into consideration the value of loans and bad debts, the amount approved by the Union Cabinet is miniscule.

Taking into account that 90% of the total debt is currently owed by only 10% of the developers, mainly the larger ones, the question remains as to how the Government will ensure that the intended financial boost trickles down to smaller developers,” said Koshy Varghese, MD, Value Designbuild Pvt Ltd.

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