Government's favourable policy regime environment has ensured foreign capital keeps flowing into the country.

Amit Goenka

MD & CEO, Nisus Finance

How do you assess the investment scenario in the real estate sector?

Real estate development almost always requires outside financing. It's not practical and may not be profitable to develop only the properties you can afford to purchase on your own, so you'll need to know where you're going to get extra money to work with for property purchase, planning, construction, and related expenses. Listed below are some of the ways of raising funds:

Private Equity: Unlike earlier, FY2021 saw private equity investors focus majorly on portfolio deals across multiple cities and assets, rather on specific projects or cities. Such portfolio deals constituted 73% of the overall share. Though FY21 was an unprecedented year due to the pandemic, foreign PE funds showed much optimism for India. As much as 93% of the total PE investments pumped into Indian real estate was by foreign investors. Foreign funds are evidently very upbeat about India. High-grade rental-generating assets have attracted foreign investors in a big way during the year.

Real Estate Investment Trusts (REITs): REITs are the best bet for the Indian commercial real estate developers at the moment, providing them with a viable funding alternative. Some well-known, sophisticated investor REITs have helped developers to improve liquidity and raise capital by unlocking their assets' value. For developers facing a cash crunch such REITs are a boon, literally. While the investors can get their money, the developers get a chance to exit the property when it is at its peak value, and reap maximum ROI.

IPO Based Funding: Another mode of fund raising available with the developers is through the IPO route. Recently, Macrotech Developers raised Rs 2500 crore though this route.

How has the ILFS crisis impacted the real estate, especially at a time when NBFCs had taken a lead in funding several projects?

The recent default by a real estate focussed non-banking finance company (NBFC), which signals increasingly tight liquidity among property developers, is credit negative for Indian banks given their significant exposure to the real estate sector. Lending by non-banking financial companies (NBFCs) which kept real estate afloat in the previous years is down to a trickle as there is still a lot of pain left in the NBFC sector and the cleaning-up process is yet to happen. With NBFCs cutting down on real estate lending, there are just four-five institutional lenders active in the market today from 20-25 players earlier.

The NBFC liquidity crisis and lending freeze in real estate comes against the backdrop of a sharp slowdown in India's real estate sector. Despite government measures to revive stalled projects and offer financial comfort, there are no signs of a recovery. The funding gap is creating a large burden in terms of construction of projects and cash flows. Many projects have already taken off courtesy NBFCs which were bankrolling everyone but now, that has stopped. The NBFC sector is at the crossroads. It's difficult to crystal-ball gaze which road the sector will take but one thing certain is that the road ahead will not be the same as the road left behind

How do you see the opportunities for FDI in the segment?

Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) has been a major non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges like tax exemptions, etc. For a country where foreign investment is being made, it also means achieving technical know-how and generating employment.

The Indian Government's favourable policy regime and robust business environment has ensured that foreign capital keeps flowing into the country. The Government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others. After agriculture, the real estate sector is the second largest employment generator in India. The persistent demand from the Information Technology (IT) sector has also impacted the urban landscape in India. Several multinational companies continue to move their operations to India to make the most of lower costs of skilled manpower and logistics.

The decision to liberalise the FDI norms in the construction sector is perhaps the most significant economic policy decision taken by the Government of India. Until now, only Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the housing and the real estate sectors. Further, the guidelines prescribed by the Ministry of Commerce & Industry, which has further opened up FDI in townships, housing, built-up infrastructure and construction-development projects.

Can you share your views on the initiatives taken to boost the affordable housing sector?

The government's 'Housing for all' initiative that it aims to achieve by 2022 has boosted the momentum of home sales in 2021. Various rules and regulations such as the Pradhan Mantri Awas Yojna (PMAY) and the GST rate cut from 8% to 1% for the affordable housing segment-have been made to help the economically weaker section get affordable housing.

These new schemes and rules imply that houses below Rs 45 lakh will be exchanged with a GST rate of 1%. Furthermore, the government's effort to extend the deadline for Credit Linked Interest Subsidy Scheme to March 31, 2021, under PMAY has brought a positive impact on the middle-class and has encouraged them to buy properties with their limited budgets.

The growing challenge of stressed projects has persisted to bring in an Alternative Investment Fund (AIF). Alternative investment funds differ from regular conventional investments like public equities or debt securities. These funds are privately pooled funds which invest in venture capital, private equity, hedge funds, infrastructure, etc. Currently, there are nearly 700 AIFs with over Rs 4 trillion in investments, an impressive 15x growth since 2015. In order to continue its fast-paced growth, however, infrastructure conforming to global standards is imperative for our country. AIFs have provided a viable route to make investments in public and private infrastructure much more accessible to investors who wish to capitalize on the opportunity presented by the development needs of India. This serves as a lucrative investment alternative for investors while contributing significantly to the overall economic growth. To put things into perspective, India has already seen a record number of 12 companies attain unicorn status to date in 2021. AIFs funds are generally subject to higher volatility, liquidity and credit risks than investments in traditional securities, which may act as a deterrent for investors.

Government has introduced the SWAMIH fund to meet the last mile funding requirements of developers. How do you see this easing out the stress in the sector?

In November, 2019, the central government launched the 'Special Window for Funding Stalled Affordable and Middle-Income Housing Projects' or 'SWAMIH' Scheme. The objective of the scheme is to provide priority debt financing for the completion of stalled housing projects falling under the affordable and middle-income housing categories. This 'last mile financing' of stalled projects will be extended through a Category-II AIF (Alternate Investment Fund) debt fund registered with the Securities and Exchange Board of India (SEBI).

A Rs 25000 crore fund set up by India's government to complete stalled housing projects had delivered its first finished apartments in 2021, offering a template for a problem that had washed out savings of thousands of home buyers and bankrupted developers. The fund had handed over some 16 projects or more than 4,000 homes in the financial year starting April 1.

At the time, India had an estimated USD 63 billion of such stalled projects as an economic slowdown and a credit crisis cascaded through the sector. Builders were unable to service their loans, forcing banks to write off the debts and worsen what was already one of the world's biggest bad-loan piles. Prime Minister Narendra Modi's government created the fund as one measure to unclog the financing pipes.

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