FM Nirmala Sitharaman said the government will put in Rs 10,000 crore in this alternative investment fund (AIF) while SBI and LIC would provide Rs 15,000 crore, taking the total size to Rs 25,000 crore.
Providing relief to lakhs of homebuyers, the Cabinet on November 6 approved the creation of a 'professionally managed' Rs 25,000 crore fund for boosting stalled middle and low-income RERA registered housing projects that are networth positive, Finance Minister Nirmala Sitharaman said.
Sitharaman said the government will put in Rs 10,000 crore in this alternative investment fund (AIF) while State Bank of India and LIC would provide Rs 15,000 crore, taking the total size to Rs 25,000 crore.
The Alternative Investment Fund (AIF) can be utilised even by the projects which have been declared non-performing assets or are facing insolvency proceedings.
"There is special window that will be made, which will be an alternative investment fund (AIF). The government will first fund Rs 10,000 crore. We've spoken to SBI and LIC to place funds. The fund is expected to have a starting value at around Rs 25,000 crore. Lot of homebuyers have approached us. They are stuck in a situation where they have paid an advance, but don't have their housing units built. Approximately 1,600 projects are stalled, which is around 4.58 lakh housing units.
"Even if the project is a NPA can it be covered under this scheme. Even if a project is under arbitration of NCLT, but only if the project has not been announced as liquidation worthy, can it be covered under this AIF. The main criteria to be covered under this scheme is that the project's net worth must be positive," she said.
The fund is not restricted to projects in Delhi-NCR or Mumbai. Every project in any part of the country can avail of the funding if it meets the criteria, she said.
These AIF funds would be entrusted to professional investment managers. For the first AIF under the Special Window, it is proposed that SBICAP Ventures Limited shall be engaged as the Investment Manager, she announced.
SBI Cap will manage the real estate AIF initially through an escrow account. It will prioritise the projects as per viability and the funds for any project will be deposited into the escrow of that particular project in a phased manner depending on the rate of completion of construction, she said, adding the Realty AIF will fund incomplete projects where housing units valued are less than Rs 1 crore in non-metro areas and worth Rs 2 crore in Mumbai and upto Rs 1.5 crore in Delhi-NCR, Chennai, Pune, Hyderabad, Ahmedabad.
The special window would provide funds to stalled housing projects, enabling them to complete unfinished projects and consequently ensure delivery of homes to a large number of home-buyers. This will, in due course, help relieve the financial stress faced by a large number of middle class home buyers who have invested their hard earned money. This will also restore trust between buyers and developers and boost the sentiments of the housing sector as a whole and release large amount of funds stuck in these projects for productive use in the economy, the finance minister said.
Funds created under the Special Window will be setup as priority debt funds. 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 of 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 ministry said in a statement.
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 ministry said in its statement.
The real estate sector welcomed the measures announced by the finance minister.
"It is a very welcome change from the initial announcement. Now the only criteria for eligibility is net worth positive projects. This will ensure that the fund is actually deployed to complete incomplete projects which are even NPA or also in NCLT. We are certain that a majority of stuck homebuyers will benefit from the announcement of a Rs 25,000 crore stress fund which is going to be increased in value if needed. Quick deployment of money and efficient decision making for qualification of projects will solve the long pending problems of home buyers. The establishment of an alternative investment fund is also welcoming," said Jaxay Shah, CREDAI National Chairman.
Niranjan Hirnandani - MD- Hiranandani Group and National President -NAREDCO, said: "The announcement that State Bank of India (SBI) and Life Insurance Corporation of India, sovereign and pension funds would also contribute to the fund, is welcome. The announcement will prove to be a win-win for both homebuyers as also real estate developers but the devil in the detail in this case will be quick implementation."
Anuj Puri, Chairman, ANAROCK Property Consultants, said that the announcement is "much in line with her promise to bring relief to the realty sector".
"To be used for last-mile funding of stuck affordable and mid segment projects, this is a critically important move which eliminates the ambiguity which surrounded the timelines for setting up the fund, and its actual implementation. Finally, countless aggrieved homebuyers will see the light at the end of the tunnel. This move couldn't have come at a better time because the delay was causing serious apprehensions. 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.
Homebuyers have also welcomed the FM's anouncements.
Abhay Upadhyay, President, Forum for Peoples’ Collective Efforts (FPCE), said that construction should now begin immediately.
"Names of the 1,600 projects identified should be disclosed so that buyers can heave a sigh of relief. It should be ensured that the money in the escrow account is not directly disbursed to the builders and a committee of homebuyers of these projects be formed to closely monitor the pace of progress," he told Moneycontrol.
Commenting on the tax aspect, Rohinton Sidhwa, Partner, Deloitte India, said: "There is probably a recognition that there are several projects available that can be viable provided there is completion funding. The AIF 2 structure is a pass through for tax purposes, the fund does not pay tax on its investment income and hence will facilitate the financing activities in a tax efficient manner."Sitharaman had earlier said the government and RBI are working to resolve the issues being faced by realty sector.
"The government is very keen and is working very clearly together with the RBI to see how best we can, where necessary, tweak the existing norms to help the people who are affected in the realty sector," Sitharaman had said on November 4.
The government in September had announced a Rs 10,000 crore special window to provide last-mile funding for completion of ongoing housing projects which are not NPAs or facing bankruptcy proceedings under NCLT.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.