The government recently announced a much-needed bailout fund for stalled real estate or housing projects across the country.
As part of the approved measure, the government will pump in Rs 10,000 crore into an Alternative Investment Fund (AIF). Meanwhile, the State Bank of India (SBI) and Life Insurance Corporation (LIC) will contribute Rs 15,000 crore to the fund.
At present, total stalled budget projects in the Mumbai Metropolitan Region (MMR) and the National Capital Region (NCR) are the highest.
While a Rs 25,000 crore fund is a small fraction of Rs 4,64,300 crore worth unfinished realty projects in seven top cities, other sovereign and pension funds have also agreed to invest in the emergency fund in due course to pull the real estate sector out of a crisis.
Bankruptcy among real estate developers have doubled over the past year, adding to the woes of NBFCs – another interesting fact that doubles up as evidence pointing at a real estate crisis. Experts said the real estate crisis, if not addressed in time, could have a contagion effect on NBFCs and banks.
The government has hit the bullseye by setting up the stress fund but it needs to introduce more reforms in taxation for the revival of the ailing sector. However, experts feel more needs to be done. There is a need to increase affordability to boost demand in the real estate market. For eg: the taxation structure for the real estate industry is not ideal and it could perform better if taxation is streamlined. Real estate developers have to pay various forms of taxes including stamp duty and GST. Over and above this, local municipal and state bodies charge huge premiums. In Mumbai, the govt taxes and premiums make up for up to 60% of the project cost rendering most redevelopment projects unviable in these times of sluggish sales. They also make it difficult for the developer to reduce prices. Some relief in taxation for the sector will lead to increased affordability – something that is necessary as India continues to resolve an internal demand slowdown.