HT Estates

Incomplete projects suffer due to liquidity crisis

- Ashwini Kumar Sharma

Last week’s Supreme Court order giving homebuyers the status of financial creditors in the Amrapali group case was a welcome move, on the face of it. However, peel off a few layers and you will find it hides a new challenge for both homebuyers and the already-stressed-for-liquidity developers. Now that banks and financial institutio­ns can’t have the sole claim on the money recovered from errant developers, they would be doubly cautious before funding projects. This may hit the supply of new units as well as the execution of under-constructi­on projects. We tell you what this means for homebuyers, but first let’s understand what is this liquidity crunch all about. real estate developers for the last few years, have their own credit problems to deal with. “Liquidity crunch is the main issue at present; banks and NBFCs are reluctant to lend money to real estate sector,” said Pankaj Goel, secretary, Confederat­ion of Real Estate Developers Associatio­n of India (CREDAI), at the annual conference NETCOM, held in Tel Aviv, Israel from 5-7 August.

According to a recent joint survey by real estate consultant­Knight Frank India, Federation of Indian Chambers of Commerce & Industry (FICCI) and real estate self-regulatory body NAREDCO, “Weak demand, inventory overhang, developer defaults coupled with the worsening of the NBFC crisis has dried up funding, which in turn has increased the borrowing cost and impacted finances for the already strained sector. In the current scenario, stakeholde­rs meaning to do good business are also finding it tough to convince lenders.”

The government’s move to restrict subvention schemes by housing finance companies (HFC) has only added to the woes of developers.

The National Housing Bank’s ( NHB) issued a circular last month asking HFCs to “desist” from offering loans under subvention schemes, wherein developers pay home loan interest on behalf of the homebuyers for a certain period, typically for the time the project remains under constructi­on. “The NHB decision to ban lending by HFCs under subvention scheme was ‘impulsive’ and should be rolled back to boost sales,” said Jaxay Shah, chairman, CREDAI.

Most experts believe the crisis will continue for some time. “The residentia­l segment is likely to face a further period of strife as NBFCs struggle with liquidity woes,” said Anshul Jain, country head and managing director, Cushman and Wakefield India.

A liquidity crisis doesn’t just spell trouble for the developers but also for the homebuyers. Lack of funding will directly affect the completion of underconst­ruction projects. “Developers are not able to achieve the requisite sales momentum without investor-led capital and that will reduce the supply pipeline and developers will struggle to complete even their existing projects,” said Anuj Puri, chairman, ANAROCK Property Consultant­s Pvt. Ltd.

Only bigger developers are being able to stomach the crisis. “In this scenario, execution of under-constructi­on projects is happening based onthefinan­cial stability of the real estate developer,” said Hiranandan­i.

However, there is good news for homebuyers too. “In such a market scenario, developers not only desist from increasing prices but give deep discounts to genuine buyers,” said Puri. According to Knight Frank’s sentiment index report, “Sentiments regarding residentia­l price appreciati­on also look lacklustre with 75% of the stakeholde­rs opining that the residentia­l prices will continue to remain muted”.

As a buyer it is crucial for you to ascertain the financial position of the developer before booking an apartment in an under-constructi­on project. It is also important to evaluate the demand for the project; stay away if the demand or sales are low. As far as investment in residentia­l real estate segment is concerned, most expert don’t see much appreciati­on in the short to medium term.

 ?? MINT/FILE ?? A liquidity crisis means trouble for homebuyers too
MINT/FILE A liquidity crisis means trouble for homebuyers too
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