The government’s decision to set up a fund of Rs 25,000 crore to provide priority debt financing for the completion of stalled housingNSE 2.84 % projects is likely to worsen the demand-supply imbalance and pricing pressure in the sector in the absence of a recovery, said India Ratings and Research.
The move is expected to provide relief to home buyers awaiting possession of the property and also offer an alternate funding channel to net worth-positive projects that have been stalled because of operational liquidity and credit availability issues.
According to the ratings agency, it is expected to benefit some real estate-focused non-banking financial companies and housing financeNSE 1.37 % companies by reviving viable projects that were classified as non-performing assets (NPAs).
The move is likely to protract market consolidation in favour of Grade I players as supply from non-Grade I players come on stream.
Given the funding constraints and regulatory changes, housing supply addition has come down on an absolute basis since 2016, while demand and absorption has remained broadly stable, thereby restoring some supply-demand balance over the last two years.
“While the announced scheme will result in supply of habitable inventory, it would not have any direct impact on the demand. This may distort the ongoing consolidation/ correction in the real estate market, and result in further pricing pressure,” the report said.
According to the ratings agency, a fund of this size would have the ability to bring about 300 million sq ft on stream over the next two-to-three years, assuming last mile funding of 30% for projects with an average construction cost of Rs 2,500 per sq ft.
Furthermore, it believes that this supply will primarily be witnessed in the Mumbai Metropolitan Region (MMR) and National Capital Region (NCR) markets, which have a fairly high number of stalled projects. At the end of June quarter, the top six markets had sold 69 million sq ft, of which MMR and NCR together accounted for about 46%. These markets had around 10 billion sq ft unsold inventory, of which MMR and NCR jointly accounted for about 54%.