Too Little Too Late

The government has tried to apply balm on realty sector’s wounds with sops ahead of the 2019 general elections. But that may not be enough.

- Rashmi Pratap

There has been a spate in the number of suicides by builders and developers as the real estate sector is reeling under its worst slowdown since 2008. The ongoing liquidity crunch following the crisis in the non-banking finance company (NBFC) sector, combined with high levels of unsold inventory has made the going even tougher for developers.

The Narendra Modi government has tried to apply balm on the wounds through sops in the interim Budget ahead of the 2019 general elections. But it is unlikely that the measures will help heal the sector anytime soon.

“There is a severe liquidity crisis and they have not addressed it at all. The liquidity crisis must be first accepted and then addressed. We need to handle the issue because otherwise Housing for All (by 2022) cannot be achieved,” says Niranjan Hiranandani, Co-founder and MD, Hiranandani Group and President of industry body NAREDCO.

What began in mid-2018, with IL&FS failing to repay its commercial dues, has caused a liquidity crisis for the entire NBFC sector. The cost of borrowing for NBFCs has gone up, following which they have increased commercial lending rates by up to 400 basis points (4 per cent), besides freezing loans to builders and developers. This comes at a time when the excess leverage for land accumulation by developers has increased their debt levels to more than 4 lakh crore as of December-end 2017, just a little short of over 4.5 lakh crore debt of the telecom sector. Alongside, ready inventory between 2014 and 2018 has increased 2.5 times. “You cannot increase productivity without addressing liquidity concerns,” says Hiranandani.

Battered and Bruised