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Unsold flats worth Rs 1.4L crore hold the key

Estimates by the finance ministry showed that constructing the entire stock of houses in 1,600 projects, many of which are in standstill state, will require over Rs 50,000 crore and this number could go up. Not all of them will be commercially via...

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Nov 07, 2019, 12.12 PM IST
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The government and SBICAP need Rs 50,000 crore to revive stalled realty projects.
(This story originally appeared in on Nov 07, 2019)
NEW DELHI: A massive inventory of unsold houses — estimated to be worth close to Rs 1.4 lakh crore at current market prices — is seen to hold the key to revive the nearly 4.6 lakh units in stalled projects across the country as the government and SBICAP Ventures are looking at a “commercially viable” model to revive the crucial sector, which is battling a slump for several years now.

Estimates by the finance ministry showed that constructing the entire stock of houses in 1,600 projects, many of which are in standstill state, will require over Rs 50,000 crore and this number could go up. While not all of them will be viable, given that fund managers will only provide capital where there is an upside in terms of revenue exceeding the cost of construction, detailed assessment was undertaken before the package was cleared by the Union Cabinet on Wednesday, officials said.

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Another source said the government relied on a detailed analysis of the current market price to draw up an estimate of the value of unsold inventory. In a large number of cases in areas such as Noida, the initial price at which midsegment projects were sold a decade ago was in the region of Rs 2,500 per square feet, which shot up to around Rs 7,000 a square feet at the peak.

These same units are now going at a massive discount to the peak value, given the abundant stock in the market.

“We are well covered as there is a large upside that is available. It is a liquidity issue, which we are trying to solve,” said an official involved with the exercise. But market players said the “upside” will only be available when current stock is exhausted, which will force the Alternate Investment Fund (AIF) to have an exposure for a certain duration. The details will be worked out by the fund once it is set up and when it draws up its investment policy.

While SBI and LIC are on board, other public sector banks and institutions are expected to be roped in by debt AIF, where positive returns are estimated. “It may vary from one project to another but it will not be a low return,” said a source.

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