Propping up the property market | Business Standard Column

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A credit guarantee can give housing a boost

T T Ram Mohan

India’s housing landscape is littered with thousands of stalled housing projects. Stalled or delayed projects spell loss of output and jobs. They also spell grief for homebuyers. Getting these projects through to completion must rank high on the agenda of economic revival.

Stalled housing projects are not strictly a post-Covid phenomenon. These had happened even before Covid struck in early 2020. The problem is not affordability, but a fear psychosis among buyers. Customer confidence has fled in the wake of bad experience with stalled projects, including some high-profile ones.

Residential housing projects are financed through a mix of equity, debt and advances from customers. Builders need advances in order to earn a decent return on their own investment. However, customers today are reluctant to make advances because they are not sure that the project will go through to completion.

Customers are willing to pay only for projects that are completed or near completion. In many cities, the price of an apartment appreciates the moment the builder produces an Occupancy Certificate, which is proof that the building is ready for occupation. We have a chicken-and-egg situation facing the residential housing sector. The builder needs advances to complete launched projects but the customer won’t pay till the project is completed. The problem needs to be addressed.

In September 2019, the government announced a scheme to address this issue at affordable and mid-income housing projects. (Special Window for Affordable and Mid-Income Housing, or SWAMIH).

Under SWAMIH, the government committed to set up a fund with a corpus of Rs 25,000 crore to invest in stalled projects. The government would contribute Rs 10,000 crore and the rest would come from LIC, SBI and private insurers. The fund achieved its first closure in December 2019, with investors committing a total of Rs 10,037 crore. Until October 2021, SWAMIH had provided final approval for 95 projects with sanctions worth Rs 95,000 crore which covered 57,700 homes.

SWAMIH is a helpful initiative but it is limited in its size. Moreover, the problem of stalled or delayed projects has worsened consequent to the two waves of Covid. A survey in August 2021 by a property consultant — and reported in the papers — showed that 1,73,740 housing units were stalled across six cities (excluding Mumbai). The value locked up in these projects was Rs 140, 613 crore. In addition, housing units that had been delayed numbered 4,54,890 with an estimated value of Rs 3,64,802 crore. SWAMIH covers less than 10 per cent of stalled and delayed housing units.

Customer demand for housing has revived but buyers remain reluctant to pay up significant advances. They are willing to make an exception in favour of builders with strong financial backing (for instance, corporate entities such as L&T, Godrej and Adani). Buyers are confident that, even without significant customer advances, these entities have the financial muscle to complete their projects.


Bank finance is essential to breathe life into stalled or delayed projects. However, banks are wary of taking exposures to developers at the best of times. They will lend to stalled or delayed projects only if there is some mitigation of risk.

There is a case for a credit guarantee scheme for residential Housing similar to the Emergency Credit Line Guarantee Scheme (ECLGS) extended to small and medium enterprises last year. The ECLGS was a bold and timely initiative and it has saved firms and jobs. The ECLGS was subject to stringent eligibility criteria. The same should apply to any credit guarantee scheme for residential housing. It is possible to indicate a few.

First, the project must involve a certain minimum number of buyers, say, 100. Secondly, it may apply to projects that have been delayed by over 12 months. Thirdly, the project must be for affordable and mid-income housing.

Fourthly, the project must be solvent, which means assets must exceed liabilities. The assets of a housing project would comprise value of receivables and value of unsold inventory. The liabilities would be the cost to completion of the project plus project liabilities.

Fifthly, the bank must satisfy itself that there has been no diversion of funds. Again, the computation involved is simple. Total expenditure incurred minus (customer money received plus construction debt) should be positive.

Bank finance for projects that meet the above criteria should be guaranteed by the government. There could be a system of graded guarantees, say, 100 per cent guarantee for projects that are 90 per cent complete, 90 per cent guarantee for projects that are 80 per cent complete and so on. These criteria may be refined through discussions with bankers and real estate professionals.

A credit guarantee scheme along the above lines will give a boost to the construction sector. The sector is employment-intensive. Migrants who lost their jobs and have gone back to their villages and enrolled for the Mahatma Gandhi National Rural Employment Guarantee Act scheme can get their jobs back. Not only will the economy benefit but the government will be able to assuage the grievances of a large community of disaffected people.

The coming Budget will not have much to offer on the macro-economic picture. It is through sector-specific proposals, such as one to boost housing, that it can expect to make an

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