Last Mile Funding Challenge Set to be Successfully Solved with Finance Minister’s Announcement

The MUMBAI, 14 November 2019: The Finance Minister Nirmala Sitharaman has announced a ₹25,000 crore package for the troubled real estate sector, which aims at assisting completion of construction of stalled and delayed housing projects. ₹10,000 crore will be contributed by the Government of India, while the rest is likely to come from State Bank of India and the Life Insurance Corporation of India. This has been welcomed as a stimulus package which seeks to provide last mile funding for delayed and stalled projects, as it will not just help compete such projects but also provide homes to home seekers who were facing an uncertain future on account of delayed and stalled projects.

According to estimates quoted in the announcement, there are 1,509 stalled housing projects in India, comprising around 458,000 units. Under the scheme, the maximum finance for a single project will be ₹400 crore. The finance will be available for projects with housing units priced up to ₹2 crore in the Mumbai Metropolitan Region (MMR), up to ₹1.5 crore in the National Capital Region (NCR), Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad and up to ₹1 crore in the rest of India.

The announcement has received positive reactions, real estate hopes for a return to normalcy as a result of this ‘last mile funding’ option. Hopefully, revival will happen, and real estate will play its role in enhancing GDP growth as also as a job provider.

While this will help solve the problem of some of the stalled and delayed real estate projects, there are other challenges – and, drastic measures are needed to bring back to life real estate. Apart from ensuring quick availability of last mile funding for stalled and delayed projects, there is also a need for enhanced credit facilities and improved liquidity as also zero GST for real estate projects for at least for six months as among immediate measures, which will have a major impact. One needs to stress on the urgent need for enhanced credit flow in real estate, as existing resources are not lending enough. A one-time write-off like was done during the Lehman Brothers crisis, has become ‘essential’ for survival of Indian real estate.

The ‘last mile funding’ option will provide priority debt financing for completion of stalled and delayed housing projects in the Affordable and Middle-Income Housing sector. While this is good, the fund starts with Rs 25,000 crore – and that does not seem sufficient to cover all stalled and delayed projects. Plus, the devil in the detail in this case will remain how quick the implementation happens – one hopes for the best.

Niranjan Hiranandani, President, NAREDCO