Rs 25,000-crore realty corpus: Experts worry over implementation

The alternative investment fund (AIF), approved by the Union Cabinet on Wednesday to cheer beleaguered real estate developers, may aggravate their pricing power in a subdued market, a Fitch group company noted in its report on Thursday.
 
India Ratings and Research (Ind-Ra), the local unit of American credit ratings agency Fitch, said timely completion of stalled and delayed projects might not only help homebuyers awaiting delivery and non-listed realtors wanting last-mile funding but also benefit real estate-focused non-banking financial companies and housing finance firms by reviving viable projects that were classified as non-performing assets (NPAs).
However, successful completion of a large number of unsold projects through this avenue has potential to add a significantly higher number to the existing inventory, which will further pressure the developers. “The demand-supply imbalance is likely to worsen, and if overall housing demand does not witness a recovery, pricing pressure in the sector is likely to be exacerbated,” it said.

 
According to Ind-Ra, lack of demand during the past few years has brought down the supply of new projects.

 
“Market consolidation in favour of Grade I (reputed brands with significant market share) players might also become protracted, as supply from non-Grade I players come on stream,” it said. Grade-I builders have a reputed brand name, significant market share, strong execution capabilities, robust balance sheet with high financial flexibility, and are regulatory-compliant.
 
According to experts, technical teams that will be evaluating and monitoring the unfinished projects will have to consider projects that are booked or at least have a significant chunk sold out. This will not only help them cater for most number of homebuyers but will also bring down the risk of adding unsold inventory into the system. “The government’s priority should be finishing the sold-out projects,” said Anuj Puri, chairman, ANAROCK Property Consultants.

 
Implementation of the scheme and timely selection, disbursement of fund, and completion of the projects, however, remain a key concern, even after AIF has been approved.
 
According to Puri, clarity on formation of different committees or the AIF’s professional asset manages that will look into these projects and monitor them till completion are due. Further, the government needs to announce operational guidelines in terms of geography, the scale of development, progress of construction, asset classification, and eligibility of developers. While Fitch highlighted that the lack of measures to boost demand is a key concern that will not be addressed through this fund. Anarock noted that providing additional tax benefits to homebuyers of all budget segments and not just to first-time buyers and the affordable segment will be required to bolster demand in Indian residential space.

 
The data show there are 1.9 million under-construction housing units in the top seven cities in India, of which the Mumbai metro region and National Capital Region together comprise 60 per cent. Pune has a 16 per cent share with over 297,000 units in various stages of construction. According to Gaurav Gupta, president of CREDAI Ghaziabad and director of SG Estates, it takes over three months for the smallest of projects to get loan approval from banks. Given the huge size of stalled projects and units, multiple teams would be required to select projects and begin work. It would, however, be a huge task to begin work at a dozen projects.

 
“Most investor firms fail to finish processes in more than a dozen projects in a year. Given the scale of the unfinished projects, how fast the proposed committees manage to set the ball rolling is a question. Further, loan restructuring would have to be done immediately for these projects so that further deterioration of financial health can be addressed,” he said.