Finance Minister Nirmala Sitharaman announced the creation of a special fund to provide financing to the many stalled affordable and middle-income housing projects in the country.
Fine Print To Determine Scope Of Fund Impact
For instance, the fund will extend finance only to affordable and middle-income housing, non-NPA (non performing assets) and non-NCLT projects, as per the government presentation.
Non-NCLT Projects Only
That means all stalled projects, of say, Jaypee Infratech Ltd., Amrapali Group or Unitech Ltd., that are currently under insolvency resolution at the National Company Law Tribunal, will get no assistance from this fund. Insolvency resolution process has been initiated against 421 real estate companies — the maximum from any sector, BloombergQuint reported earlier.
The decision to leave out insolvent projects is because the government is not keen on intervening in an ongoing judicial process. But the exclusion of these much-troubled projects has resulted in disappointment for those championing the cause of the thousands of stranded homebuyers.
“We are disappointed on exclusion of projects that are with NCLT and NPA,” M S Shankar, national secretary of the Forum for People's Collective Efforts, a homebuyers’ lobby group, told BloombergQuint.
However, we are confident that, as the finance minister mentioned during media interaction today, the inter-ministerial committee is working on the suggestions and layout to rescue those projects which amount to 30 percent of stuck projects across the country.MS Shankar, National Secretary, Forum for People’s Collective Efforts
Affordable, Middle-Income Housing Only
The exclusion of projects being resolved under the Insolvency and Bankruptcy Code is the first lapse, said Niranjan Hiranandani, co-founder and managing director of Hiranandani Group, a prominent developer in Mumbai. The second lapse is the rider that the stress fund will only be for “affordable and middle-income housing”, Hiranandani said to BloombergQuint.
While the government has limited the fund to such projects to ensure assistance is extended to lower and middle income groups only, the limitation may not sit well across projects, as Hiranandani explained.
“When we do projects, they have studio apartments, one-, two-, three-bedroom apartments. Of 500 apartments if ten are 3-bedroom apartments they may not be considered as middle-income and affordable. Then what happens? Will you, because of those 5-10 flats which are of larger size, or which come under higher income bracket, not cover the project?”
Hiranandani also pointed out that due to the definition of “affordable housing” in Tier one cities (units up to 60 square metre in size or up to Rs 45 lakh in price) most stalled buildings in the Mumbai region will be left out of the ambit of this special fund.
Anarock’s Puri raised an additional point that needs clarification. “...there is no clarity of the price of mid segment homes that will be included in this move,” he said.
Non-NPA Projects Only
The decision to exclude non-NPA projects has also raised much concern.
If a developer has been unable to pay three monthly installments, the loan gets classified as non performing loan or an NPA, explained Mistry.
If those kind of cases also will not be eligible for this funding, then you are restricting the number of projects that could get covered in this scheme.Keki Mistry, Vice Chairman and CEO, HDFC
Speed Is Of Essence
The lack of a timeline for the implementation of this fund has worried Jaxay Shah, owner of construction company Savvy Infrastructures Ltd. and the head of industry body CREDAI.
“My apprehension is that if the government delays this, even the healthy projects will become weak. We need more clarity on timing. We need treatment now, we can’t even wait for two weeks or one month because the festival season is coming. I think the government has failed to give confidence and sentiment boost to the real estate industry in housing projects also,” Shah said to BloombergQuint.
While glad for the current set of solutions, Shankar was hopeful that other recommendations, such as secured creditor status for homebuyers in an insolvency process, are also considered soon.
Also, “...the larger issue of demand creation has not been addressed in any way and form in these announcements,” said Shishir Baijal, chairman and managing director of property consultancy Knight Frank India.
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