Bloomberg

The Indian government’s decision to launch a $1.4 billion fund to salvage stalled residential projects is unlikely to revive a sector that’s been the worst hit by the growth slowdown in Asia’s third-largest economy.As part of a broader plan to kick-start the economy, Finance Minister Nirmala Sitharaman announced the setting up of a 100 billion rupee fund to finance middle-income and affordable housing projects. State-run National Investment Infrastructure Fund and Life Insurance Corp. of India will be among the investors and the government expects others, including sovereign wealth funds, banks and domestic financial institutions to match the contribution.The Narendra Modi-led government will create a special window to provide last-mile funding for mothballed housing projects, provided they are not already a non-performing asset or facing insolvency proceedings.A series of economic shocks in the last few years, from the unexpected withdrawal of high-value rupee notes in 2016 to the sales tax introduced the following year, have dented property-market sentiment and caused funding for developers to dry up. The country’s economic expanded at the slowest pace in six years for the quarter ended June 30.“Looking at the grave situation of the real estate industry , I think this is not enough. The government has just scratched the surface,” Jaxay Shah, chairman of the Confederation of Real Estate Developers Association of India told Bloomberg Quint.An analysis of about 11,000 home builders by research firm Liases Foras in February showed that developers on average have to repay twice as much in debt each year as the income they generate that can be used to service it. This comes as property prices in India’s biggest cities are flagging -- home values in Mumbai sank 11% last year following a 5% decline in 2017. India introduced a law with strict punishments for building delays in 2016.The announcement will not solve the problem of delayed or stalled projects and affected home seekers in locations like the National Capital Region, as a majority of the incomplete residential projects here are under litigation or are already non-performing assets, which the fund won’t support, Niranjan Hiranandani, founder of Hiranandani Group, said.For some, the fund offers a brief respite. Healthy projects will benefit as they would not be pushed into bad debt-like situation for want of working capital, said Shishir Baijal, chairman and managing director at Knight Frank India. “The larger issues of demand creation has not been addressed in any way.”As many as 560,000 homes worth of 4.5 trillion rupees ($65 billion) stuck or delayed across the top seven Indian cities, according to Anarock Property Consultants. These stalled projects are at the center of slowdown in the country’s property market and key reason for mounting default risk of developers.