Jaspreet Kaur, a marketing professional in New Delhi, should have been able to move into her new home a couple of years ago.
But work on the three-bedroom apartment bought by her husband in 2013, being built in Noida, a satellite city of India’s capital, suddenly stopped before it was completed.
“It’s a matter of great worry for us because we’ve paid more than 75 per cent of the money to the builders and there’s no certainty on the date of us getting to see the property completed and handed over to us,” she says.
But India’s Finance Minister Nirmala Sitharaman on Wednesday gave some hope for the country’s ailing real estate sector and affected homebuyers such as Ms Kaur, with the government’s approval of a $1.4 billion (Dh5.14bn) fund to help revive stalled housing projects by providing last-mile financing.
“We’re hoping the project restarts as many middle-class people like us have put all they had into those properties,” says Ms Kaur.
Projects across India, Asia’s third-largest economy, have stalled for various reasons, but the liquidity crunch in the non-banking financial sector in the country this year has exacerbated the problem, pushing a number of companies out of business in the sector that depend heavily on loans from these institutions to fund construction.
Developers are hopeful that the government’s move will bring some much-needed relief to the industry. “The vexed problem of delayed and stalled real estate projects appears to have found a solution,” says Niranjan Hiranandani, the managing director of developer Hiranandani Group in Mumbai and the president of the developers’ trade body, the National Real Estate Development Council.
“This will be a win-win for homebuyers and real estate developers, as it will help alleviate financial stress faced by homebuyers who have invested their hard-earned money, while also releasing funds stuck in stalled projects.”
There are a total of 576,000 budget segment homes – launched in 2013 or before – that are stuck in various stages of non-completion in seven of India’s major cities alone, with the majority of these located in Mumbai and Delhi. These projects are valued at 4.6 trillion rupees (Dh236.6bn), according to a research report by property consultancy Anarock.
Ramesh Nair, the chief executive and country head at real estate services company JLL India describes the fund as "a game changer".
“It has come at an opportune moment when the residential market is tackling the headwinds from the trickle down impact of a series of [real estate sector] reforms and an economic slowdown,” he says. “While it will boost consumer sentiment and enhance confidence, it will act as a strong catalyst in pushing the sales velocity.”
The announcement is the latest in a series of measures that have been introduced by Prime Minister Narendra Modi's government in an effort to revive India's flagging economy.
India's gross domestic product growth slowed to a more than six-year low of 5 per cent in the April to June quarter, triggering widespread concerns on the near term future of the country's economy. Economists say the country's GDP needs to grow at least at 8 per cent or above annually to support and create enough jobs for its population of more than 1.3 billion.
However, there is little hope on the horizon for economic improvement, and Moody’s Investors Service on Thursday downgraded its outlook on the Indian government’s ratings to negative from stable, citing “the risks that economic growth will remain materially lower than in the past”.
The real estate industry is an important part of India’s economy, accounting for up to 6 per cent of its GDP and it is the second-largest employer in India after agriculture, according to official figures.
Developers agree the latest move by the government sends a positive signal.
"The growth of this sector heavily relies on conducive government policies," says Sanjay Dutt, the managing director and chief executive of Tata Realty and Infrastructure, a unit of the Indian conglomerate Tata Sons. "This is a much-required boost to bring the real estate sector back on its feet."
Plans for such a fund were first unveiled in September. But the version that has finally been approved is far-reaching than the original proposal.
India's largest lender State Bank of India and Life Corporation of India, a state-run insurance company, have committed an additional 150 billion rupees to the real estate fund, which is also open to contributions from other sovereign and pension funds.
The fund will be used to help stalled housing projects in the affordable and mid-market segments of the real estate sector.
The finance ministry said more than 1,600 projects could benefit from the scheme. It also cover projects that are considered non-performing assets, along with ones in bankruptcy court. Reviving these projects in turn could help lenders and the non-banking financial companies that have a massive exposure to the property market.
Developers do, however, recognise that more needs to be done to aid the full recovery of the real estate sector.
Mr Dutt at Tata Realty describes the initiative as “a brilliant start”, adding that it “will help set precedents of government initiatives to support the real estate sector”.
“The deployment time of this initiative holds the key to its success,” he notes.
The property sector faced challenges even before the non-banking financial sector liquidity crisis came to the fore.
Over the past few years, India’s real estate sector has taken a hit in the wake of demonetisation, when the government banned the two highest-value banknotes in a bid to clamp down on illegal money flows.
The high property prices and interest rates also kept buyers away from the market. Reforms such as a new real estate regulation and development act have also shaken up the industry.
Deo Tripathi, the managing director and chief executive of Aadhar Housing Finance, an Indian housing loan finance company, says there will be ripple effects of the move, beyond the property sector.
"This announcement ... will give a big boost to the Indian economy," he says. "It will create a multiplier effect in job creation and boost the other segments like cement, steel and lot of many industries, which are linked with real estate."
But not everyone is as upbeat about the initiative.
Koshy Varghese, the managing director of Value Designbuild, a developer, in Bangalore says the fact the government is "trying to reach out to the ailing realty sector is heartening", however the amount the government has approved "is minuscule" when compared with the value of loans and bad debts.
“Taking into account that 90 per cent of the total debt is currently owed by only 10 per cent of the developers – mainly the larger ones – the question remains as to how the government will ensure that the intended financial boost trickles down to the smaller developers?”
Mr Varghese also raises concerns about when the government will actually be able to activate the fund, and says the industry would benefit more from immediate measures, such as government providing incentives for people to buy homes.
Many developers say they now want to see other measures to help the property industry, including easing the burden of the goods and services tax and getting faster clearances for projects.
Mohit Agrawal, an analyst at IIFL Institutional Equities, says it is “a well-intended first step to resolve the crisis in the real estate sector, [but] we also see significant challenges in its implementation, considering the complexity of the challenge”.
Some market observers are not convinced that revival of so many projects will actually help the real estate sector, which has struggled with oversupply in recent years.
“With stalled projects coming on stream, the demand-supply imbalance is likely to worsen, and if overall housing demand does not witness a recovery, pricing pressure in the sector is likely to be exacerbated,” according to India Ratings and Research, which is part of Fitch Group.
The real estate fund is the latest steps taken by New Delhi to support the economy, including a reduction in corporate taxes to 22 per cent from 30 per cent. But all these efforts may not be enough to kick start growth.
"While government measures to support the economy should help reduce the depth and duration of India's growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions, have increased the probability of a more entrenched slowdown," according to Moody's.
The real estate fund for stalled projects may be a building block to help the sector’s woes, but there is some way to go before the country emerges from its economic woes.