The much anticipated measures to address concerns of the real estate sector may have (1) limited implications for listed real estate stocks that do not have large affordable housing projects, and (2) do not address street concerns on stressed projects as the announced credit fund will not look at projects that have been declared non-performing assets or are already under the NCLT liquidation process.

The government over the weekend announced incremental measures to address concerns of the real estate sector including (1) relaxed external commercial borrowing norms for real estate for home buyers eligible under PMAY, (2) lower interest cost for housing loans under house building advance extended to government employees, and (3) setting up a Rs200 bn fund to extend credit to affordable /mid-income projects that are not declared non-performing assets or under NCLT process and are 60% complete.

The fund for extending credit to affordable and mid-income housing will be set up on the lines of the National Infrastructure and Investment Fund, wherein the government will contribute the initial corpus of Rs100 bn, while an equivalent amount will likely be raised from financial investors such as LIC and sovereign funds.

However, the fund will look to extend credit to projects only if they fulfill the following conditions (1) projects have not been declared non-performing assets or are not part of the NCLT process, (2) project entities are net worth positive, (3) project construction is 60% complete, and (4) projects belong to the affordable and mid income category. In our view, projects which meet the above criterion will likely have access to other sources of credit, and street was more hopeful to find a resolution for stressed assets that are not able to tap into conventional sources of funding.

Lack of official data on the stalled projects across India makes it challenging to assess the demand for such a fund. According to Prop Tiger, there are 410,000 apartment units below Rs4.5 mn as on August 2019. It is not known how many of these are 60% complete i.e. stuck in the final stages—but a fund of Rs200 bn will adequately fund 40% of the construction cost for as many as 250,000 units.

Listed real estate stocks have had lesser concerns on leverage and do not have offerings that meet the affordable housing criterion for government incentives. Street was hopeful that the economic booster would help in reducing purchase cost (through tax incentives) for premium segment of housing, or address concerns on stressed projects that have been stranded for lack of funding.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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