More Investors Engaged in Last-Mile Funding for Stalled Housing Projects
Earlier in September, Government has approved Rs 25,000 crore special window to provide funds for stalled housing projects, to revive the real estate sector, and bring relief to home buyers. Apart from the Centre, SBI, LIC, the sovereign and pension funds have also agreed to invest in the market. Taking this approach forward, Kotak Investment Advisor, Kotak Mahindra Group's alternative investment firm, has set out to provide financing for the completion of ongoing housing projects in an attempt to boost the real estate sector and to encourage home buyers.
In sharp contrast to previous years, more investors are showing a keen interest in last-mile financing of the stalled housing market, which appears similar to the government's commitment of Rs 25,000 for stressed residential projects. The pressures are on developers to produce projects as soon as possible with the earlier promised possession schedule in the line of changing regulative and market environments.
Last-mile Housing Package to Benefit House Owners
The government estimates that there are 4.58 lakhs housing projects in Hyderabad and other states that are facing delayed delivery over 1600 stalled housing projects. The delay has led to an increase in consumer activism, several consumer forum litigations, and even the National Law Court for Companies (NCLT).
Kotak Investment Advisors, Kotak Mahindra Group's alternative investment firm has concentrated on distressed properties in the liquidity-hit real estate industry and seeks to acquire these projects across the country. In the housing sector, the latest-mile funding potential can be high, given there is no provision for the one-time restructuring of existing loans. The new financial provider would like to be subordinated to the existing lender so that interest and principal payments will not be completed until they get paid.
Kotak, as one of the largest domestic real estate funding organizations in India, has raised a total fund worth 1.8 billion dollars and has dry powder (cash reserves kept on hand by a company) of about 500 million dollars or Rs 3 500 crores. Following two significant investments in stuck housing projects that have been closed over the past couple of years, and making about 23 percent returns by turning them around, the fund has called for opportunities to be explored in this real estate sector.
The Government's participation and last-mile funding are one of the most sought after products preferred by several lenders across the geography. In addition to low performance, land title, and sales risk, the segment stand apart for its faster returns on its capital with higher-than-moderate returns. Investors are also focused on projects since these are already in the last state, and several risks, including the market discovery of price and velocity, and regulatory approvals in addition to design and development, have already been mitigated and thus have an interest rate of 12 to14 percent.
In addition to the compulsions of RERA, last-mile financing is also driven by the new trend of homebuyers who show a preference for completed and ready-to-move projects to avoid insecurity. This is the right solution, as more assets would see completion that benefits all stakeholders. This would also lead to reduced claims in addition to these advantages. As a result, last-mile funding for stalled housing projects will help to push the wheels of the real estate sector and relieve the financial stress faced by a large number of homebuyers who have invested their hard-earned money.
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By: Shailaja K
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