Real estate needs some special care

Real estate needs some special care

Real estate is a huge employer and the visible symbol of urbanisation. It has extensive forward and backward linkages in the economy. The sector is in dire straits and the restructuring on offer for much of industry will bypass it, unless its specific conditions are addressed.

Very little of real estate gets funded by banks or the larger housing finance companies or other non-banking financial companies. Very little of the troubled industry would register as standard, in the lingo of creditworthiness, as of March 1, 2020, a pre-requisite for the loan restructuring that RBI has announced for industry, for which a committee headed by veteran banker K V Kamath is developing norms. So, the government and RBI must come up with some sector-specific solutions, to release the Rs 11 lakh crore and then some locked up in stalled real estate projects. A first step would be to separate the projects that would become standard with some bit of capital infusion, so that they can leverage the credit system to complete their projects and go forward. These would mostly be projects where 70% or more of the construction is complete. The Rs 25,000 crore fund announced by the government almost a year ago has not disbursed much money because of the stringent eligibility conditions it put forward. Relax those conditions and allow these projects to utilise those funds and get going. Then there are projects where construction is complete in the range 30-70%. Capital that does not require immediate servicing is what such projects call for. That means creating formal corporate structures that can issue equity, diluting the promoters’ stakes, to a special purpose vehicle sponsored directly or indirectly by the government. And the last category, of projects that turned unviable early on, should be bought out at a realistic valuation.

Real estate bodies Credai and Naredco should work with rating agencies to identify projects that carry little risk. The special vehicle can issue bonds blessed by the Credit Guarantee Enhancement Corporation to finance its capital provision to such projects.