The creation of a Rs 25,000 crore stressed asset fund is expected to benefit lakhs of homebuyers stuck in projects for years but concerns on fund adequacy, mode and time taken to implement and sale of unsold inventory persist, said experts.
As per ICRA estimates, around Rs 35,000-45,000 crore would be required to fund the completion of the revised quantum of 4.58 lakh eligible dwelling units.
Moreover, while some clarity has been provided on the modus operandi of the fund, with the same being created as a category-II AIF managed by SBICAP Ventures Limited to provide priority debt funding to the eligible projects, the nuances of the final investment policy, and its impact on project selection will be a key look-out area.
A Finance Ministry statement has said that a detailed Investment Policy will be laid down to guide the selection of projects to be financed through a detailed due-diligence process that will include legal due-diligence, title due diligence, micro-market analysis, financial analysis. The final decision will be taken by the Investment Committee of each Fund, comprising experienced professionals and industry experts.
The Investment Committee will approve individual deals independently as per Investment Policy ensuring alignment with investment objectives of the Fund. The Investment Manager will be responsible to ensure that the funds are used only for construction through appropriate safeguards mandated by RERA and also through deployment of external project monitoring agencies, the statement said.
"The process of forming this committee and actual selection of projects, the advisory board will take time," said experts pointing out that this process may take at least two quarters if not more.
"The return expectations of private investors would need to be factored into the investment policy, which may result in some narrowing of the eligible project pool. Moreover, the framing of this policy is likely to take time, which, together with the due-diligence and selection process associated with each project, may delay the actual disbursement of funds," said Shubham Jain, Senior Vice President and Group Head at ICRA.
Active monitoring by the investment manager would also be critical for ensuring the ultimate efficacy of the fund in enabling project completion and providing relief to distressed homebuyers, especially given the concerns on developer ability and intent to complete the project.
In this context, certain important monitoring tools have already been formulized, including the routing of project-wise funding through an escrow account in a phased manner, linked to construction progress.
The government has also suggested the deployment of external project management companies to aid project monitoring. However, other key areas pertaining to debt structuring remain unclear at present, including the flexibility available to the existing lenders of the project to restructure debt obligations in a manner that facilitates the project completion, and the positioning of the AIF infused funds, relative to existing project debt, in terms of seniority and collateral sharing, which will need to be addressed in a manner acceptable to all the financial stakeholders.
Continuous engagement with the existing lenders is important, Jain said.
Nevertheless, creation of the fund is expected to be highly beneficial for existing customers in stuck projects, with the funding expected to aid project completion.
However, as per ICRA estimates, nearly half the inventory in these projects remains unsold at present.
"Demand risk for the unsold inventory remains significant, and is exacerbated by the ongoing macroeconomic weakness. Going forward, the marketability and incremental sale generation from the funded projects will be another key look-out area, especially given the dependence of final recovery of debt obligations on the same," added Jain.
Anuj Puri, Chairman – ANAROCK Property Consultants, also said that actual implementation will be the most important factor.
"The delay in the on-ground deployment of the stress fund gave rise to severe apprehensions about the main issues – that of stuck and delayed projects – that had remained unaddressed so far. The timeline for setting up this fund and its actual implementation is quite critical," he said.