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Will a Rs 10,000cr stressed asset fund rescue the real estate sector?

In case a stressed asset fund is constituted, experts feel developers should not be given a bailout package

Over the last few weeks there has been talk that the government may unveil a set of measures that may include a stressed asset fund for the real estate sector, especially aimed at bailing out stalled housing projects where lakhs of homebuyers have invested their hard-earned money and have not received possession for over a decade.

Finance Minister Nirmala Sitharaman has hinted that the government will be unveiling a set of measures aimed at resolving issues being faced by homebuyers stuck in housing projects in the NCR (National Capital Region) and Mumbai.

"We have had consultations with homebuyers , who have paid their advances and sitting without knowing what to do, and promoters that are sitting with no money to further their projects,” the finance minister had said.


Housing and Urban Affairs Minister Hardeep Singh Puri said remedial measures would be taken on the three big real estate projects in Delhi-NCR – Unitech, Amrapali and Jaypee – thanks to action by the Supreme Court.

ANAROCK research said as many as 220 projects, equalling 1.74 lakh homes, are completely stalled in the top seven cities alone. Launched either in 2013 or before, these projects have absolutely no construction activity going on. The overall value of all stalled units is estimated to be more than Rs 177,400 crore. Most projects have been grounded due to either liquidity issues or on account of litigation.

NCR has the largest pile-up of stalled units at 1.18 lakh homes (68 percent of the total stuck stock) spread over 67 projects, with an overall value of Rs 82,200 crore. Of this, nearly 69 percent (or 83,470 units) are already sold out.

MMR follows next with nearly 38,060 units stuck at various stages. However, the number of projects covering stuck units in MMR is higher than NCR. Stalled units in MMR span over 89 projects as against 67 in NCR.  In value terms, MMR is quite close to NCR, with stalled units worth over Rs 80,200 crore as against Rs 82,200 crore for NCR.

Will an Rs 10,000 crore stressed asset fund be enough?

A homebuyers’ body -- Forum for Peoples' Collective Efforts (FPCE) -- told the finance minister that five lakh homebuyers are stuck in various projects across India and demanded creation of a Rs 10,000 crore stress fund to complete such projects.

"The objective should be to complete all pending real estate projects within a span of five years by providing for such a stress fund continuously for the next five years," the forum said in a list of recommendations submitted to the finance minister.

The stressed asset fund would initially kick-start a stuck project. Subsequently, all money siphoned off by the builder, payments received from homebuyers and realisation on account of unsold units should be brought into the stressed project. Only the shortfall amount should be utilised from the stressed asset fund, homebuyers said.

Buyers feel steps should be taken to ensure that promoters of stalled projects, who are utilising proceeds from the stress fund, should be stripped of all their personal and company's assets to realise the funds utilised for completion of those projects. They should also be permanently barred from carrying on business.

"To achieve this within a reasonable time frame, extra power should be given to authorities for seizure and attachment so as to complete the entire exercise within six months," they added.

Niranjan Hiranandani, National President, Naredco, said the NCR region alone accounts for more than two lakh incomplete apartments. “Those are the ones for which we are seeking a stressed asset fund, which would be the last mile funding. We look forward to see how the stressed asset fund can be raised. We have suggested the LIFO (last in first out) method for the purpose of funding for the stressed asset fund. This can be done quickly if the government gives necessary directions in this regard,” he said.

Some developers are of the view that Rs 10,000 crore is only a drop in the ocean, an amount just enough to take care of Amrapali’s stuck projects.

Pankaj Bajaj, Managing Director, Eldeco Group, said that neither Rs 2,000 crore nor Rs 10,000 crore is enough. "No stress fund can take care of this problem. Ultimately banks have to start lending again. No stressed asset fund can solve a problem of this magnitude. Rs 10,000 crore is just enough to take care of Amrapali’s woes. To complete all stressed projects spread across the country, we may require over Rs 1 lakh crore."

Bajaj feels the government should provide a one-time window for restructuring of real estate loans. "We don’t want any dole, just give us a moratorium of eight to nine months, so that the focus is on construction. After that take the money back with interest,” he added.

The way forward

In case a stressed asset fund is constituted, FPCE feels developers should not be given a bailout package. "Why should taxpayers be footing money required by builders who have delayed projects?  Every penny utilised for the purpose of project completion should be recovered from builders. This is important to ensure that the sector does not fall into the same trap again," its President Abhay Upadhyay said.

Experts feel the role of the task force should be to identify stalled projects, assess how much money is needed, and how much can be recovered.

“A taskforce should map all stuck projects across the country, the number of years they have been delayed and then segregate them in different buckets say beyond five years, beyond 10 years, beyond three to four years et al.  The taskforce should then give priority to the ‘most' and 'extremely' stressed projects, assess the amount available and funds required to complete these projects,” an industry expert said.

Experts feel that the stressed asset fund should not be used for projects launched post-implementation of RERA. “It should be used only for ancestral projects, projects that have been delayed beyond five years. RERA should be held accountable if delays have happened after its introduction,” an expert said.

They want projects that are the worst affected to be completed first to get back investor confidence.

First Published on Sep 11, 2019 10:53 am