June 16, 2020: Given the mounting of stalled projects, the SBICAP Ventures that managed last-mile fund for stressed real estate projects has received over 100 new applications from real estate developers over the past month.
A lot of these applications seeking financial support have been made during the last 15 days after the fund had lowered its return expectations to 12% from earlier 15%-17%.
The newly generated demand for liquidity can be attributed to existing lenders including non-banking finance companies (NBFCs) and Alternate Investment Funds (AIFs) offering new loans at around 18% in the current Covid19-led crisis.
Given the liquidity crunch, most project financiers have said that they don’t have money to top up loans. Even if they are providing additional funds for the project completion, construction material costs have gone up.
Apart from tier I cities that have already been trying to get funds for completion of the stalled projects, the new applications are flowing in from tier II cities like Jaipur.
The new financing proposals have sought investments ranging from Rs 10 crore to Rs 300 crore for each stalled project.
Although the fund has started evaluating these proposals, the final due diligence leading to any confirmation will be firmed up once the lockdown ends completely.
The fine print provided by the government states that the maximum finance for any single project from this fund will be capped at Rs 400 crore.
So far, the fund–Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects (SWAMIH I)–has cleared investments worth over Rs 1,000 crore for six additional projects during the lockdown period taking its total commitment to over Rs 1,500 crore.
It is not surprising that the ongoing Covid-19 crisis may result in more projects getting stalled due to liquidity crunch.
Any clarity on this will appear only after November as the Reserve Bank of India has already announced a 6-month moratorium on all term and working capital loans.
Apart from this, Real Estate Regulatory Authorities (RERA) across several states have extended the deadlines for project completions. According to government estimates, there are 4.58 lakh stalled housing units in 1,509 residential projects stuck across the country.
The Rs 12,500-crore fund, with green-shoe option of additional Rs 12,500 crore, aims to provide the capital to enable completion of stalled housing projects and ensure delivery of apartments to troubled homebuyers.