Small steps to cure real estate

This Saturday, Finance Minister Nirmala Sitharaman announced the next set of measures in a series of initiatives taken to boost the economy, this time focusing on the export and housing sector. Starting with the non-banking finance industry crisis last September, the credit crisis impact was felt by two crucial sectors, auto and housing. 

While the auto sector is facing one type of issue, the housing sector’s problems are different and may take longer to heal. The announcement of a `10,000 crore contribution by the Centre for setting up a Fund with equal contribution by other investors is a welcome step. But, it is a partial palliative for a sector that has been hit by serious liquidity issues on the one hand and demand contraction with massive inventory pile up on the other. Also the Fund, to be set up as a special window for non-NCLT and non-NPA assets, would address only the affordable and middle income category needs. This no doubt would help complete projects that are stuck for want of funds and also help buyers get possession of property in which they have already invested. 

The NBFC-led troubles are still unfolding as even last week a default of a firm directly pointing to troubles from developer loans shows the sector needs a concerted and multi-pronged approach to be put back on track. This corpus may be small and limited to addressing the level of stress in the segment. The larger cities face the highest unsold inventory, and it is estimated that the top seven cities alone have over 5.5 lakh units stuck or delayed.

A majority of them would also be outside the affordable segment, and the market as such would be waiting to see what the price tag applied for the middle income category is. Other measures like the ECB guidelines for financing home buyers also in the PMAY segment are long-term in nature and may take time to bring in much needed investment. Falling interest rates may give some comfort to home buyers to consider a loan, but the demand revival would depend on employment certainty and confidence over wages.