As slowdown bites, real estate industry wants a 'stress fund' to help unfinished projects

As the slowdown bites, the real estate industry wants the Indian government to be its saviour. Recently, representatives from industry body NAREDCO met the Finance Minister Nirmala Sitharaman and mentioned the need for a 'stress fund'. If the government agrees to float such a fund, it could become the last-mile capital for large unfinished projects.

Niranjan Hiranandani, Co Founder and Managing Director of Hiranandani Group and National President of NAREDCO told Business Today on the sidelines of a real restate conference that 'stress' is when projects are stuck and where a large number of people are affected. "If you cannot deliver lakhs of apartments, it is something the government has to worry about and intervene," he said.

"The idea is that major projects, which are outstanding, should be taken care of. It was mentioned in our meeting with the Finance Minister. We are hopeful. We think the government is serious about sorting out the problem," he added.

Hiranandani said that the fund could start with a corpus of Rs 2,000-3,000 crore.

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Stress funds are a global phenomenon and are present in nearly every mature market. Just that many of them are private funds. "They invest in stress situations, which could be anytime in the lifecycle of a project. If there is a large debt on a project, they would do a one-time settlement with the debt provider before providing additional funds so that the project can be completed. These funds have started coming to India," Chintan Patel, Partner, Deal Advisory and National Head - Building, Construction & Real Estate at KPMG, said.

Stress funds typically try to make a return in excess of 20 per cent because the risk is also high, he added.

A recent survey by consultancy Knight Frank, industry bodies FICCI and NAREDCO found that the real estate industry's stakeholders have downgraded the outlook for the ongoing six months to 'pessimistic'. Knight Frank particularly noted that "the overall slowdown in the economy, coupled with factors like the NBFC crisis, developer defaults and bankruptcies, have slackened the sentiments of the sector, especially for the residential segment. The situation is further compounded by factors like the ongoing liquidity crisis and a diminutive demand scenario".

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About 53 per cent of the stakeholders opined that the funding scenario may worsen in the next six months with lenders exercising caution in lending to sectors such as real estate, automobile and other consumption driven sectors.