As property market awaits finance minister's stimulus, a reminder of the challenges it faces

Property consultants have a wide range of estimates as to just how many houses in India’s property market are completed but unsold – while Knight Frank estimates that number to be around 4.5 lakh units, Liases Foras’s estimate is closer to the 13 lakh unit mark. Either way, that’s a lot of unsold houses.

There are two ways that the finance minister can tackle these problems. First, raising the limit of what counts as “affordable housing” to units worth up to Rs 1 crore to give tax breaks to both builders and homebuyers.

Second, enacting the model tenancy law to incentivise rental housing. The key challenge, however, is that these houses are old – on average, Knight Frank estimates that they’ve been unsold for more than three years since completion, and the older the inventory, the harder it is to move.

Real estate experts have been saying that the post-IL&FS liquidity crunch has led to higher consolidation than demonetisation, Goods and Services Tax (GST) and RERA combined. Liquidity has been hard to find – according to a JLL India report, non-banking financial company (NBFC) funding to builders nearly halved to Rs 27,000 crore in FY19 as compared to Rs 52,000 crore in FY18.

The finance minister has already promised a liquidity boost of Rs 20,000 crore to the housing finance companies via the National Housing Bank, which should help move things along – but the issue is that with so much consolidation happening, NBFCs have become very selective about the builders they are willing to lend to. In other words, trust is in short supply.

Depending on whom you ask, there are between 1.74 lakh and 4.12 lakh housing units that are stuck in some stage of development, either due to litigation or because the builder is out of money. A large portion of these houses have been sold as well, which means homebuyers are just waiting to get possession of these houses.

It’s been widely speculated that the finance minister will announce a stressed asset fund to complete these projects and deliver homes to buyers. The sheer volume, however, makes this a daunting task. NBCC alone will not have the bandwidth to complete and deliver all of these houses in a reasonable period of time, and other trusted developers are busy meeting their own deadlines.

Of course, a stimulus package is still better than leaving the real estate market to its own fate – but the finance minister would do well to keep in mind that the sector faces complex, multi-faceted problems, and it’s not going to be easy solving this mess.