The past two years have been excruciatingly challenging for real estate and housing finance in India.
After facing a series of setbacks following demonetization, introduction of the RERA Act and implementation of the GST framework, the Non-Banking Financial Companies (NBFC) crisis in 2018 completely dried up funding for the sector, leading to sluggish demand and inventory pile-up.
All along, the government remained determined in its target of providing 1.03 crore affordable homes under the Pradhan Mantri Awas Yojna-Urban (PMAY-U) scheme by 2022.
In August 2019, a liquidity infusion of Rs 10,000 crore for HFCs was announced to ease flow of funds to housing sector as additional liquidity for individual housing loans, for affordable housing. Towards the fag end of that year, an AIF (Alternate Investment Fund) of Rs 25,000 crore was set up to provide last-mile funding to about 1,600 stalled projects at different stages to restart non-bank financing to housing sector, again especially for affordable housing.
The policy impetus by the government and regulators produced visible green-shoots in the housing sector. Affordable housing, particularly, kept the sales up and contributed to the AUM growth of housing finance companies (HFCs).
Just as things were starting to look up, the lockdown due to the Novel Coronavirus pandemic dealt a serious blow to affordable housing targets, and stalled real estate growth.
The policymakers once again have been prompt in their action to meet immediate financing needs of the housing and other critical sectors.
Reserve Bank of India (RBI) announced a special refinance facility of Rs 10,0oo crore to National Housing Bank (NHB) for funding housing finance companies (HFCs).
Accordingly, NHB has launched Special Refinance Facility (SRF) scheme to provide short-term loan to housing finance companies (HFCs) and other eligible primary lending institutions (PLIs). This would enable HFCs to partially mitigate their liquidity risk and improve the liquidity into the overall housing finance system.
The NHB has specified that HFCs/PLIs need to utilise the funds drawn under this facility for disbursement of individual housing loans falling under the category of priority sector, as defined by RBI, over a period of one year period.
Post the lock-down period, the government will expectedly undertake many more possible measures to revive growth of affordable housing in order to meet its PMAY targets.
Several boosters could come in the form of redefinition of affordable housing, additional tax sops, interest rate waivers and credit linked subsidies, along with liquidity windows to NBFCs and HFCs.
The government has already shown promise and enough zeal to keep the liquidity channels of for non-banking entities well flushed to meet the affordable housing targets. This might just translate into greater funding activities from NBFCs/HFCs to affordable housing projects in the period after the lockdown ends.