July 05, 2023
Banks may give up rights to revive housing projects
The recent developments in the housing sector indicate that several high-street banks are willing to waive their first claims to assets and cash flow in order to help new financiers revive struggling housing projects. This move is aimed at addressing the challenges faced by millions of homebuyers across the nation due to unfinished projects.
According to a survey by ANAROCK, as of May 2022, over 4.80 lakh units that were started in 2014 or earlier and over 4.48 lakh crore worth of projects were still under construction in the top 7 cities. The value of unfinished projects in the country is expected to exceed 5.5 lakh crore, as per a banker's estimate.
Historically, banks have been reluctant to relinquish their first entitlement to cash flow in such projects classified as non-performing assets (NPAs). However, given the strengthening real estate market and the potential benefits, some bank CEOs and industry leaders are now open to giving up their rights to new lenders offering priority funding.
ANAROCK data shows that the housing inventory overhang in the top 7 cities has decreased from 42 months in Q1 2018 to just 20 months by the end of Q1 2023, the lowest in the past five years. The inventory overhang represents the number of months it would take to sell the unsold housing stock at the current absorption rate. A healthy inventory overhang is typically considered to be in the range of 18 to 24 months.
The completion of these stalled projects largely depends on new funding from new lenders, as most banks with existing sticky loans to these projects are hesitant to provide additional funding. New capital sources, such as the SWAMIH Fund administered by SBICAP Ventures, are expected to play a crucial role in providing the necessary funding and would naturally expect first access to the cash flow as homebuyers start paying the remaining balance of their purchase price.
The article also mentions that banks are realizing that holding onto their first claim rights has not been beneficial, as the projects have been stranded for years and the project costs have escalated. Banks are now willing to surrender their first claim in projects where the cash flow is expected to be substantial.
In 2022, the majority of stalled or delayed projects were concentrated in the Mumbai Metropolitan Region and the National Capital Region, accounting for 77% of the total. Bangalore, Chennai, and Hyderabad in the southern part of the country represented only 9% of the total projects affected.
Overall, the willingness of banks to give up their rights and prioritize funding for struggling housing projects reflects a shift in their approach and a recognition of the need to address the challenges faced by homebuyers and the potential benefits of reviving these projects in a strengthening real estate market.40,000 residential property buyers in a bind due to his unfinished work, is largely responsible for the steps to resume delayed projects.
The real estate market relied on consumer spending, and in the instance of Amrapali, both the government and banks disregarded their obligations, the supreme court ruled in a landmark decision on July 23, 2019. The court ordered the federal and state governments to take the necessary actions to aid homebuyers who have been similarly duped. Four months following the Supreme Court decision, the SWAMIH Fund was made public.