Major banking institutions are set to relinquish their first rights over assets and cash flows to new financiers, aiming to jumpstart stalled housing projects nationwide. The shift, discussed by bank CEOs and industry insiders last week, reflects a growing realisation that clinging to first rights impedes project progress. This move could bring relief to millions of potential homeowners affected by these stalled projects, predominantly concentrated in the Mumbai Metropolitan Region and National Capital Region. This transformative strategy follows the Supreme Court's judgement on the Amrapali case and the subsequent launch of the SWAMIH Fund.
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Key financial players are set to consider relinquishing rights to new financiers in order to breathe new life into frozen housing projects across the country. The move comes as a potential relief for millions of prospective homeowners affected by these stalled projects.
Last week, top banking executives and industry insiders were in discussion, with many signaling a willingness to cede their first claim rights over project assets and cash flow to new lenders who offer priority funding. This marks a significant paradigm shift, especially when the nation's real estate market is showing signs of revival.
As of May 2022, around 4.80 lakh housing units, launched in 2014 or prior and valued over 74.48 lakh crore, remained incomplete in various construction stages across the top seven cities, as per a report by ANAROCK, a leading real estate services firm. A banking source claimed that the total value of delayed projects countrywide is expected to surpass 75.5 lakh crore. It appears that financial institutions are now realising that their once steadfast adherence to retaining first right over cash flow is hindering the much-needed project progress.
A compelling factor in this transformation is the unprecedented reduction in housing inventory overhang across the top seven cities - falling to a mere 20 months by Q1 2023, the lowest in five years, down from 42 months in Q1 2018, according to ANAROCK. An inventory overhang between 18-24 months is generally considered a healthy market indicator.
Since most banks are hesitant to provide additional loans to these stalled projects, their completion is heavily reliant on fresh capital infusion from new lenders, such as the SWAMIH Fund, managed by SBICAP Ventures. These new lenders insist on having the first right over cash flow once home buyers commence balance payments.
Majority of these stagnated projects, approximately 77%, are located in Mumbai Metropolitan Region and National Capital Region. Southern cities, including Bengaluru, Chennai, and Hyderabad, account for just 9%.
This revolutionary development in the banking sector has its roots in the Supreme Court's historic judgement on the Amrapali case, which highlighted the systemic failure of banks and authorities, impacting 40,000 residential home buyers. The judgement urged both central and state governments to take steps to assist home buyers similarly affected. The SWAMIH Fund was launched four months after this landmark ruling.
In conclusion, this new approach in the banking sector, driven by the urgency to complete delayed housing projects and a positive real estate market outlook, offers a glimmer of hope for millions of potential homeowners. Only time will reveal the impact and success of this initiative.
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