Real Estate Needs Some Special Care

Context: Real estate sector is in the dire straits and the restructuring on offer for much of industry will bypass it unless its specific conditions are addressed.

The relevance of Real Estate Sector

• It has extensive forward and backward linkages in the economy. 
• It is a huge employer 
• Act as the visible symbol of urbanisation. 

• Low funding avenues: Very few get funded by banks or the larger housing finance companies or other non-banking financial companies. 
  • Stringent eligibility conditions: attached with the Government funds fails to disburse much money to the real estate sector.
• Low creditworthiness: since most firms are in trouble and would not be registered as a standard asset.

Sector-Specific Solutions

• Release funds for the stalled projects: where 70% or more of the construction is complete

• • • Separate the projects that would become standard with some bit of capital infusion.
    • Relax stringent conditions and allow real estate projects to utilise government funds and get going.

• Create formal corporate equity structures: for projects where construction is complete in the range 30-70% and dilute the promoters’ stakes to a government-sponsored Special Purpose Vehicle.

• Projects that turned unviable: should be bought out at a realistic valuation.
• Identifying the less risky projects: 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.