How a Rs 25,000-Crore Boost can Help the Real Estate Industry

It was a beautiful Wednesday on a fine November morning for Prabhas and Shubhra. Finally, they could be relieved homebuyers rather than anxious about the outcome of their investment in a stalled housing project that had much of their life’s savings tied up.

The Minister of Finance, Nirmala Sitharaman announced the infusion of Rs 25,000 crore in the real estate sector to revive delayed housing projects and generate demand in the industry. The government’s boost is a huge relief for distressed homebuyers and also builders and developers who are looking towards funds to aid their projects. Overall the Rs 25,000 crore realty boost is hoped to steer the consumption demand back towards the real estate sector that has been crumbling with low demand and liquidity scares.

The Scheme Decoded

According to the finance minister, the government will contribute Rs 10,000 crore towards an Alternate Investment Fund (AIF), the first AIF to get confirmation under this special window. The remaining amount of Rs 15,000 crore will be jointly provided by the State Bank of India (SBI) and the Life Insurance Corporation (LIC).

This fund infusion will help the 1,600 RERA approved housing projects that are stuck in various stages of incompletion. A total of 4.58 lakh housing units will be revived and delivered to homebuyers in the affordable and middle-income housing segments. This means projects not exceeding a total of 200 sq. metres in area and worth Rs 1 crore to Rs 2 crore depending on the geographical region.

Those housing projects that are non-performing assets in banks or reached the bankruptcy courts, could be included under this scheme. On the other hand, the housing projects that have liquidation orders will be excluded. The government will exert standard financial controls specified by RERA as well as the Investment Manager will exercise operational authority.

The Real Estate Revival

The 25,000 crore realty boost is a breath of fresh life for the real estate sector that has been reeling with low demand and severe liquidity issues that have squeezed the cash-flow. It was a vicious circle that halted ongoing projects stranding numerous homebuyers who had already started their monthly home loan installments. Besides, developers could not raise funds too which impacted the economy. Shying homebuyers further reduced demand leading to a widespread lack of trust in new projects.

With this boost, stalled projects can race towards completion delivering homes to long-waiting investors. The segment of homebuyers will improve their sentiments as the concrete step by the government will add to the morale. The real estate sector is poised to witness a surge in demands as stalled projects open up the availability of housing units, the reduction in inventory will relax pressure on pricing. In short, the funds stuck in the real estate sector and the boost will eventually be productive for the economy.

Builders and developers can look forward to raising funds as the cash-flow open up and release new projects taking the sector ahead.

The Banking Relief

Finally, the non-performing assets will see a change. The 25k crore realty boost will be a welcome move for banks and other NBFCs. They can now look forward to the repayment of dues. The market will also welcome the decreasing stress and this could lift several stocks too. Housing Finance companies in particular stand to benefit the most. Traders and investors will be keeping a close watch on housing-related stocks to maximise their gains. The real estate sector booster package will have a multiplier effect on the economy, helping related sectors and industries as well as generating employment.

The Domino Effect

As stalled projects pick up their pace, employment will see a revival in the real estate sector. The improving prospects of the labour segment will see a direct effect on the purchasing power and a positive influence on the consumer durables industries. The economy is in a win-win situation. Housing-related industries such as cement, iron and steel, paints, ceramics and tiles, décor and furnishings will also rake in benefits spilled over from the real sector boost.

There is a view that the finance minister has given the Indian economy a Rs 1,25,000 crore boost considering the huge domino effect of the policy.

This boost has the potential to revive the economy in the mainstream centres, providing relief to buyers, assistance to developers and resurging in the housing sector. For tens of thousands of people like Prabhas and Shubra, this can be viewed as a much-needed and long-awaited step that finally found its way.

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