Stalled real estate projects will be made commercially viable: Sanjiv Chadha, SBICAP
A fund of this sort can have a cascading effect, says MD & CEO, SBICap Sec
Why would you say that AIF (alternate investment fund) was the preferred vehicle for this particular fund? Is there an opportunistic element here in generating a profit whilst reviving a stalemate situation or is it purely to reinvigorate the real estate market?
The objective of the fund has been very clearly articulated. It is to address a very large number of stalled housing projects, where the money of a lot of home buyers is stuck. The fund seeks to address the affordable and the mid market segment and also projects which are RERA registered. When we talk of the affordable and mid market segment, what we mean is that in a city like Mumbai, we are looking at units which are about up to Rs 2 crore in terms of value. In other major seven-eight cities, it is applicable to properties up to Rs 1.5 crore in terms of value and in the smaller towns, up to Rs 1 crore in value.
The fund is seeking to address a very large part of the addressable issue and in our assessment, with the criteria that have been laid out, the needs of virtually 90% of the market will be addressed. Going ahead, along with addressing the issue of stalled housing projects, the objective of the fund is also to make sure that we address the problem in a manner which is commercially viable. The fund would be looking to generate returns where apart from the government money which has been promised, we can attract commercial investors both from India and abroad.
Is Rs 10,000 crore enough? Would you say, it could spur the completion of Rs 1.8- trillion stalled projects? This is a source based number. that I am throwing at you.
When we look at what the fund is seeking to do, it is very important to appreciate that we are not looking at providing funds to execute housing projects. It is absolutely correct that the value of housing projects would be in the region of Rs 1,80,000 crore.What the funds now need is the last mile funding which is a fraction of that figure and to my mind that figure would be in the region of may be Rs 50,000-55,0000 crore. Now if we were to take that as the market that we wish to address, a Rs 22,000-25,000-crore fund addresses that problem very substantially.
Is this purely capital infusion or will there be strategic help and hand holding as well?
As a fund manager, I can say the fund would be looking at doing both. One is to provide the last mile funding which is required to complete the project and make sure that the home buyers can get their houses expeditiously. But in order to do that, it will also be the role of the fund to make sure that they are tight covenants in terms of how both the project is executed in terms of financial covenants.
Wouldn’t it be better to wait till the overall economy shows more promise before diving into initiatives like this or do you believe a revival in real estate will jumpstart the languishing economy?
The timing is very appropriate. If we see the kind of cascading impact initiatives of this sort can have. If a fund of this sort can be effective, then you address a number of problems simultaneously. First of all, there is a problem in terms of home buyers who are stuck and their money is stuck. It is very important that they get the houses that they have been promised.
Number two, we are looking at the real estate construction market which is a very important employment generator as also a very important economic engine. If these projects were to take off, that has an effect in terms of generating activities in this sector. There is a very salutary impact in major industries like cement, like iron and steel, a very important pack in terms of employment and further, as we move ahead, the real estate sector is a very important piece when it comes to addressing the issues that the NBFC sector faces.
We would be able to address those issues to a substantial degree and when we address the NBFC issues. Part of the problems that banks today have in terms of their balance sheet will also get addressed. I would believe that this initiative is a very well thought-out, timely move and the impact it can have is very broad ranging. It can actually be a very important contributor in kick starting economic growth.
Which players are you targeting for maximum relief to come in? There is a monetary limit of Rs 2 crore, but the stress in real estate extends far beyond the small ticket home segment. Why are you ignoring luxury and high-end, where a huge inventory exists, especially in a city like Mumbai?
The objective the government has laid out is to have the maximum impact. When you are looking at the maximum impact, that can be achievable by a few ways. If a project is very near completion and is stuck for the lack of last-mile funding, that funding is provided to the project. Second, if you look at the market, this fund is looking at a fairly wide spectrum. We are looking at housing units of up to Rs 2 crore in value all over the country. In our calculation, this addresses about 90% of the addressable market.
Third, we need to consider that it is not only important to complete these projects, it is also very important to make sure that they get sold. If we look at the demand for housing today, it is the most robust when it comes to the affordable and mid-market segment. If we target money at this particular segment, we have the maximum impact. We help the maximum number of home buyers and we also have a ready market to absorb these homes.
All in all, it is a very well thought-out, very well-crafted proposition which has a very good chance of success.
1,600 housing projects with about 4.5 lakh housing units have been stalled due to a lack of funds. Of this, around 2 lakh are in the NCR, a lakh in Mumbai and the rest in smaller cities. What is the number of projects that you target for completion, post the infusion of funds from the AIF and any percentage number that you can share with us?
This is something which was mentioned by our Chairman also on television couple of days back that as a general proposition, it is about 90-120 days, pared in terms of closing a deal. However, we are acutely conscious of the time sensitivity of the issue and we would like to expedite the process and do it quicker.
We also have done a fair bit of ground work in terms of surveying the market, doing our research and also identifying projects which are available in the market today to make an early start. We do believe that we can make a significant impact within this financial year and also make a start within the calendar year. We are quite sanguine that this fund is well positioned to make a quick impact and it should be a sizable because we are looking at the amount of funding which is required in terms of last-mile funding and if that is in the region of Rs 55,000-60,000 crore, a fund which is of Rs 25,000 crore is a very substantial proportion of that. The government has also made it clear that if more funding is required to address the balance market, that also would be made available in due course of time.