‘Stress Fund Can Help Resolve Last Mile Funding Crisis’: Dr. Niranjan Hiranandani On FM’s Relief Measures

Authored by Dr. Niranjan Hiranandani – Founder & MD  Hiranandani Group.

• Finance Minister’s move ‘positive’ on demand side as also the liquidity side

• Definition of ‘affordable housing’ vis-à-vis costing up to Rs 45 lakh needs to change

• Apart from Govt. employees, other segments of home seekers also need to be incentivized

To help home buyers stuck with under construction homes in projects that have remained unfinished, the Indian Government announced a special window to provide last mile funding for housing projects which are non-NPA and non-NCLT and are net worth positive in affordable and middle income category. The Hon’ble Fin. Min. who made the announcement said that NIIF and LIC will invest in the new housing stress fund; as also that 3 and half lakh schemes to be targeted for the special housing funding window.

The announcement of Rs 20,000 crore fund to help stuck affordable housing projects is similar to the concept of a ‘stress fund’ to help bail out incomplete projects that have been stalled owing to problems of liquidity. This is something which we, at NAREDCO, have been speaking about since the last 18 months. Obviously this is welcome, as it will ensure many affordable and MIG projects stuck because of last mile funding requirements – subject to not being under NCLT or NPA – will be able to get completed.

The Hon’ble Fin. Min. announced two riders to the stress fund, and the industry holds its breath on both. First she mentioned the fund will start with Rs. 20,000 crore; we hope it will be enhanced. Secondly, she said this is not for projects which are already under NCLT and NPA, given that delayed projects in both these categories are already undergoing due process under existing set-up. For delayed and stalled projects – for example in the NCR – this will be a major problem, given that most of such projects are under NCLT and NPA, and will not get the benefit of this stress fund. This announcement will not solve the problem of delayed/ stalled projects and affected home seekers in locations like the NCR.

Secondly, the focus has also been on demand creation, with the announcement of House building advance to help government officials buying homes. This is a big sector that buys housing, these will be incentivized to buy homes, which is positive. Taking this further, there are other segments of home buyers who also need to be incentivized, these also need to be given a positive boost.

Effectively, the Hon’ble Fin. Min. has made a beginning on both, the demand side as also the liquidity side, which augurs well for Indian real estate, but it would be welcome if the proposal is further enhanced.

Relaxing the External Commercial Borrowing (ECB) guidelines to facilitate financing home buyers who are eligible under the Pradhan Mantri Awas Yojana (PMAY) is a positive announcement.

Similarly, the announcement that professionals, and not government officials will operate special funding window for housing is welcome.

The last mile funding has been envisaged for ‘affordable’ and ‘MIG’ homes. There is a need to change the definition of ‘affordable housing’. At present, the Government of India considers a unit with a price tag of Rs 45 lakh as ‘affordable’. We need to remove the price-cap while defining ‘affordable housing’ and focus on project size. I do not understand the logic why someone would think that Rs 45 lakh is a suitable benchmark for affordable housing, when it makes no sense for projects in Delhi, Mumbai and Chennai.

At NAREDCO, we have long been advocating increasing the price-cap of Rs 45 lakh to Rs 1 crore, so as to allow buyers of these homes to benefit from Government rules concerning affordable housing, which in turn, could spur buying and resuscitate a stagnant housing market.

Click to know more about stress fund.