Banks might relinquish the right to restart housing projects.

In order to help new financiers revive struggling housing developments that have left millions of homebuyers throughout the nation in the dark, several high-street banks will waive their first claims to assets and cash flow.

Several of the bank CEOs and other industry leaders who spoke about the issue a week ago were willing to give up their rights to new lenders who offered priority funding.

According to research by ANAROCK, a renowned provider of real estate services, over 4.80 lakh units (started in 2014 or earlier) worth over 4.48 lakh crore were still in various phases of development in the top 7 cities as of the end of May 2022. According to a banker, the value of unfinished projects in the nation would surpass 35.5 lacks.

“We have little to lose because the majority of these unfinished real estate projects have loan exposures that are NPAs (non-performing assets).

With loan exposures to the majority of these unfinished real estate projects that are classified as NPAs (non-performing assets), we have little to lose. Historically, banks have been hesitant to give up their first entitlement to cash flow. This is altering. We could miss the bus if we wait much longer.

According to ANAROCK, the housing inventory overhang in the top 7 cities decreased from 42 months in Q1 2018 to just 20 months by the end of Q1 2023, the smallest amount in the previous five years.

The amount of unsold housing stock currently available on the market, measured in months of inventory, represents how long it would take to sell at the current pace of absorption. A healthy inventory overhang is typically one of 18 to 24 months.

The completion of such projects depends heavily on new funding from new lenders because the majority of banks having outstanding sticky loans to stalled projects are hesitant to issue additional. When the home buyers begin paying the balance of the purchase price, such new capital sources, like the SWAMIH Fund, administered by SBICAP Ventures, would obviously expect the first access to the cash flow.

In fact, the new creditor is adamant about this requirement. There is no agreement without that. Banks are starting to see that holding on to the first right is not helpful because the money has been frozen for years and project costs are rising, according to another individual. Banks “would probably agree to projects where the cash flow is expected to be more when surrendering their first claim,” he said.

In 2022, 77% of the projects that were stalled or delayed were in the Mumbai Metropolitan Region and the National Capital Region. Bengaluru, Chennai, and Hyderabad, which are located in the south, account for just 9% of the total.

The Supreme Court’s decision in the Amrapali case, where the builder’s unfinished work had put 40,000 residential property buyers in a bind due to his unfinished work, is largely responsible for the steps to resume delayed projects.

The real estate market relied on consumer spending, and in the instance of Amrapali, both the government and banks disregarded their obligations, the Supreme Court ruled in a landmark decision on July 23, 2019.

The court ordered the federal and state governments to take the necessary actions to aid homebuyers who have been similarly duped. Four months following the Supreme Court decision, the SWAMIH Fund was made public.