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NAREDCO Doles Out Solutions To Revive The Real Estate Sector



NAREDCO Doles Out Solutions To Revive The Real Estate Sector

NAREDCO lists out ways in which builder can deal with a crisis thereby delivering homes on time and ultimately restoring the faith of hassled homebuyers

Despite the fact that the Indian residential real estate industry is not currently in its strong form, the National Real Estate Development Council (NAREDCO) has urged it give utmost prominence to its consumers’ requirements and problems. The faith of the homebuyers is what needs to be restored according to NAREDCO. With the delays in possession dates and halting of construction work due to the various external factors last year, thousands of homebuyers who had put their life savings into buying homes suffered the most. The further the delay in getting their homes, the more the tenure of their bank loan EMI and higher the interest rate.

In its pre-budget memorandum, NAREDCO also pointed out that it does understand the limitations faced by the real estate industry. That it consists of good developers and bad developers. “The idea is not to protect any one of them, although they may be in trouble for various reasons of their own making or purely due to economic realities not controlled by them,” a statement from NAREDCO read.

The real estate body has come up with a three-part approach to deal with any crisis situation which will ultimately benefit the homebuyers.

Dealing with stressed assets ‘Land parcels’

When some of these areas were auctioned or leased by developers from the government, projects failed to be developed there. Even in the future, this is how it will be because of the current excess supplies that have still to be absorbed.

The solution: The government should take back the land and return the money/funds paid by the developers. Not only will this be beneficial for the government authorities as the land is bound to have experienced appreciation, but the builder will also get excess cash to put into a current project whose progress is suffering due to lack of funds.

It further added that some of these assets can be officially labeled as ‘delayed projects where cash outflow is lesser than expected inflows’. The tricky situation here is that a part of the project is complete, however, lack of funds has halted work and that has affected the promised delivery date to the buyers.

The solution: “One source can be from funds received by the surrender of leased/ auctioned land parcels by the government / public sector corporations. Another source can be through a construction-linked commitment from buyers, with marginal funding from financial institutions to kick-start the largely completed structure. The developer would gain by virtue of a stalled project coming to life and the buyers would gain from an asset purchased at old, historical prices,” NAREDCO said.

The final scenario is lands where construction hasn’t commenced however, builders are over-leveraged, either through excess collections from buyers or due to huge debts to financial institutions.

The solution: Builders must try and seek internal funds from their own companies. “It could be funds returned by government/authorities for land parcels, but to be kept in escrow accounts, to be used for completing distressed projects. The second option could be to permit rules of Escrow accounts for existing projects to allow funded projects to pay for over-leveraged projects and projects which can be completed,” NAREDCO said.

Banks need to work with authorities and create a list of those developers who fall under these three circumstances.

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