Rs 10,000 Cr Last Mile Funding to Complete Stalled Housing Projects

Finance Minister, Nirmala Sitharaman, on Saturday, 14^th of September, 2019, announced certain measures related to real estate sector to boost the overall economy of the country. As per a report by Times of India, in her announcement, she mentioned the following points.

• A special window for affordable and middle-income housing is being created. A special window will provide a ‘last mile funding’ requirements for housing projects which are non-NPA and non-NCLT projects and are net worth positive in affordable and middle-income category to be set up. This particular window which will be set up with a fund size of Rs 10,000 crores which will be contributed by the government of India and roughly the same amount from outside investors. What we expect to do with this particular window is that this window or the special dispensation will be run by complete professionals.
   
• They shall be drawn from the marketplace or experienced domain specialists who have either banking or housing finance related experience. They shall operate this window. And they, in turn, will be identifying all over the country. Such projects which are middle-income and affordable schemes related, where nearly 60 percent of the work is completed and they don’t have anymore cash flow that they can complete the rest 40 percent.
   
• As a result, the middle-income groups, affordable houses buying groups, people who are waiting for their houses to be given to them but who invested and are waiting can now find relief in that. Through this assistance, the project shall get completed. People don’t have to live in rented house, keep paying their monthly instalments and not get their house in hands.
   
• So, for all over the country, wherever the housing projects are stuck, because they are not complete, can now seek relief so long as they are not an NPA and not in the NCLT. So, such middle-income projects which are almost complete but are waiting for the ‘last mile’ cash infusion shall benefit from this special window that we’ve created with a core 10,000 crores of rupees.
   
• Government will not operate it but certainly will bring in professionals who will run this. And we expect, therefore, unfinished units will get completed.
   
• Government of India, on the lines of NIIF (the National Infrastructure Investment Fund) can contribute to the fund while the rest of the investors would be like LIC, other institutions and private capital from banks, sovereign funds and DFIs and so on. The fund shall be set up as a category to AIF (Alternative Investment Fund Trust) and would be professionally run with experts from housing and banking sector.

Simply put, the government of India has taken a step to acknowledge, rectify and regularise the growth of real estate sector in the country. And with the same intention, the government has announced a ‘last mile’ fund support of Rs 10,000 crores to complete the construction of stalled residential projects especially those developed for people with affordable and middle-income groups. The key objective of stress fund is to complete the construction of unfinished units owing to lack of cash flow. Reportedly, this move is said to be beneficial for over 3.5 lakh dwelling units across the country. The declared stress fund is said to let the families get their own house in the next two to three years, i.e., by 2021 or 2022. But, only time will reveal how it will benefit the thousands and lakhs of home-buyers whose investments are caught up in the projects with insolvency cases with the NCLT (National Company Law Tribunal).

In addition to this, with previously declared a total of Rs 30,000 crores liquidity support to struggling HSBs (Housing Sector Banks), relaxation of ECB (External Commercial Borrowing) guidelines for affordable housing have also been announced. FM Nirmala Sitharaman said, “ECB guidelines will be relaxed to facilitate financing of home-buyers who are eligible under PMAY (Pradhan Mantri Awas Yojana) in consultation with RBI (Reserve Bank of India)”. These new ECB for affordable housing will be applicable in addition to the already existing ones.

Also, it was announced that the interest rates on ‘house building advance’ would be reduced and would be linked to 10 year government security yields to encourage investment of government employees in the realty sector. Government employees make the most of the demand for housing sector in India. She also mentioned that the banks will launch repo rates or external benchmark linked loans as per the guidelines of the RBI. It will be strictly monitored whether the said norms are being followed or not. Repo rate can be defined as the lending rate of RBI to scheduled banks. Decrease in lending rates or the repo rate will in turn, reduce the interest rates on secured loans for borrowers. Thus, this will encourage more number of people to opt for secured loans from PSBs (public sector banks).

Considering all of these factors like reduced repo rates, merging of 27 banks into 12 PSBs, liquidity support of Rs 30,000 crores to struggling housing finance companies and now stress fund of Rs 10,000 crores to complete the construction of unfinished units, the realty sector is set to witness a boost in the coming two to three years. This kind of support from the government will motivate more number of people to invest in real estate in India. This will directly or indirectly boost the overall economic development of the country. Thus, it is no wonder that realty sector is said to contribute nearly 13 percent to India’s GDP (Gross Domestic Product).