Special Situation Funds – Bailing Out India’s Stuck Housing Projects

Let’s take the hypothetical situation of a developer’s residential project in Mumbai in the last stages of completion. The original date of completion was December 2020 as per RERA. Construction was initially funded by debt from a non-banking financial company (NBFC) and 60% of the sanctioned amount has already been disbursed.

Now, the NBFC is rocked by severe liquidity pressures and cannot fund the project to completion. Sales have been lacklustre because of buyers’ increasing preference for ready-to-move or almost completed projects. By the same coin, sales will pick up once the project nears completion.

Many existing buyers have bought units with construction-linked payment plans. Because the project is stalled, they’re not making any further payments. The developer’s ability to service debt has depleted and the project is now categorised as a non-performing asset (NPA).

This is the story of most of the stalled projects in the country, though projected completion timelines will differ. These projects need a new source of last-mile funding to complete the project.

If they get it, the developer will be ready to pay a premium to be able to complete the project with incremental capital, and the NBFC can recover its dues and ease its own balance sheet. Buyers will get their flats and more buyers will line up to buy completed units.

A win-win situation - and, concisely, what Special Situation Funds (SSFs) do.

Read the full article https://www.anujpuri.com/special-situation-funds-stuck-housing-projects/