India sets up 250b-rupee fund to revive stuck housing projects

New Delhi

INDIA'S plan to set up a 250 billion-rupee (S$4.78 billion) fund to salvage stalled residential projects will only be sufficient to complete about 6 per cent of construction that is running behind schedule in Asia's third-largest economy.

The new programme announced by Finance Minister Nirmala Sitharaman on Wednesday is an improvement on a 100 billion rupees real-estate corpus announced in September and, unlike the previous plan, it will also support projects written off by lenders as bad loans.

In all, about 576,000 projects worth some 4.6 trillion rupees are running behind schedule across seven big Indian cities, according to Anarock data.

The latest measure will help unclog the financing pipes, said Anuj Puri, chairman of Anarock Property Consultants.

Stalled projects are at the centre of a slowdown in the country's property market and a key reason for mounting default risk of developers.

The fund size is not enough to cover the entire problem, but will act as a "lubricant to start the wheel that had been jammed", said Mr Puri.

Once projects are revived and completed, money will start circulating in the system, which will help all developers, he said.

Indian Prime Minister Narendra Modi is keen to revive the real estate industry to boost demand and kick-start an economy that's expanded at the slowest pace in six years for the quarter ended June 30.

Still, developers say authorities need to carefully structure and price the fund, and roll it out quickly, for it to succeed.

The new fund "will be in the form of an alternate investment fund with the government contributing 100 billion rupees", Ms Sitharaman said.

State-run insurer Life Insurance Corp, State Bank of India and others are likely to contribute the remaining 150 billion rupees.

There are 1,600 stalled housing projects with around half a million incomplete dwelling units that could benefit from the fund, Ms Sitharaman said. The decision was taken after a discussion with stakeholders and the central bank.

The fund could take as much as six months to be operational, screening of eligible projects will need time, and "at best" will help around 16 per cent of stalled projects "over a period of time", Jefferies analysts led by Bhaskar Basu wrote in a note.

"The devil lies in the details," said Boman Irani, chairman of Mumbai-based developer Rustomjee Group. For the fund to be viable, real estate companies mustn't have to pay more than 9 per cent, which may hamper interest from external investors, he said. BLOOMBERG