Towards stability

Rising incomes in general reflected in a remarkable growth in India's housing sector. On the other hand, with reduced capacity to spend, the impact on the housing sector has one to show prominently. It was announced in mid-September that as a step to allay the critical state of the slumping Indian economy, Union Finance Minister Nirmala Sitharaman declared a third set of decisions pertaining to the export and housing sectors as they are potent means to revive the economy and take it closer to a place of stability. With the announcement of a Rs 10,000 crore special window to provide last mile funding for unfinished housing projects, targeting these crucial sectors are especially vital as they are drivers of several other associated economic activities. Keeping in line with this plan, the government has approved a plan to set up a Rs 25,000 crore alternative investment fund (AIF) to revive stalled housing projects with the motive to provide relief to distressed homebuyers and revive the ailing realty sector. While the government will invest Rs 10,000 crore in the fund, the remaining Rs 15,000 crore will come in from state-owned agencies like State Bank of India, Life Insurance Corporation of India etc. Minister Nirmala Sitharaman announced that incomplete housing projects worth less than Rs 2 crore per unit in Mumbai, Rs 1.5 crore in metros including NCR and Rs. 1 crore in other parts of the country will benefit from the latest move. Coming as a relief to home buyers, the grim status has been that real estate projects worth Rs 1.8 tn are stalled across India, according to Anarock Property Consultants. As far as the procedure goes, the projects have to be registered in RERA (Real Estate Regulation and Development Act) and their net worth should be positive. Even if the project has been declared an NPA or dragged to NCLT but not asked for liquidation will also benefit, the Union Minister clarified. Dwindling sales, piling inventory and falling prices had been giving a difficult time to property developers also as funding for projects ran dry with banks reluctant to lend to real estate projects fearing defaults. The prospects of the industry has been seeing a down turn and suffering since demonetisation in November 2016 and the implementation of the goods and services tax in July the next year. The previous announcement made for the housing sector in September excluded projects that were declared defaulters or are facing bankruptcy proceedings from availing the benefits of the scheme. Defining mid-income housing by indicating the eligibility of projects based on price points across property markets will benefit premium projects, thereby expanding the scope of including more projects under the new corpus. This is definitely a major step with significant consequences as projects undergoing insolvency proceedings are allowed to benefit from the distressed fund scheme. This is also the first time that such a step has been taken to revive stalled projects and can be expected to positively affect the real estate market sentiment.

1,600 housing projects and 458,000 housing units are stalled due to lack of funds. Of the stalled units, analysts estimate that around 200,000 are in NCR, around 100,000 in Mumbai and the rest in smaller cities. The attention to real estate is part of the government's larger plan to rev up growth and revive the slumping economy which has been at a six-year low of 5 per cent in the quarter ended 30 June. The net worth of projects will be considered positive if their cash flow is higher than their project cost. With the problem of liquidity, the government's intervention is indispensable owing to some amount of market failure. With respect to the government's plan of action, SBICAP Ventures Ltd will run the AIF and ensure the funds are utilised only for completion of the intended projects. AIF is a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, for investing them in accordance with a defined policy. The real estate AIF cleared by the cabinet is a category II AIF and will not undertake borrowing activities other than to meet day-to-day operational requirements. Going beyond affordable housing and considering mid income projects will be a critical step forward. Most Indians have per capita space equal to or less than a 10x10 feet room for their living, sleeping, cooking, washing and toilet needs. The average is 103 sq ft per person in rural areas and 117 sq ft per person in urban areas. Although cities have better facilities than villages, except for the major metros, no city in India provides full-day water supply. States like Gujarat and Madhya Pradesh, however, provide a continuous power supply. With wide disparities in housing between the affluent, middle-income and low-income segments of the population Mumbai, in particular, has urbanisation challenges as other fast growing cities. Delhi has witnessed rapid suburban growth over the past decade with thousands of apartment buildings, Affordable Homes, shopping centres and highways coming up in NCR. With revival of stalled housing projects, encouraging settlements in new areas and developing them in the process is quantitatively a marker of economic growth and qualitatively, a sign of prosperity as human settlement brings with it the scope of all the necessary changes that turn a place from a piece of land to centre of peaceful living complete with all the basic essentials from food to convenient services, to institutions for healthcare, education, recreation, etc., and generating just about as much employment. As the seed of economic growth is allowed to germinate and the development form these efforts approach fruition, another class of components will be readied to drive the economy towards greater achievements and sustained prosperity.