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Rs 25K crore realty stress fund: Speedy, effective implementation would be key

The government is yet to announce a definitive timeline for setting up this fund and delays beyond a point may defeat the purpose  

Moneycontrol Contributor @moneycontrolcom
Representative image
Representative image

Saurabh Srivastava

The residential real estate sector has been experiencing its most turbulent phase. NBFCs had been a dominant source of funding for developers over the last 3-4 years. However, in the wake of recent events in this sector, public sector banks (key source of funds for NBFCs) became wary of funding NBFCs, which in turn squeezed availability of project level funds in the hands of most developers.

At the same point in time, the economic slowdown has resulted in homebuyers deferring buying decisions. There is a lack of buyer confidence in under construction projects and consequently customer advances, a major source of cash flows for developers, have dried up in the absence of sales.

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These twin concerns, lack of liquidity in the hands of developers and lack of buyer demand, led to the current crisis.

In order to address the liquidity concern, the Government of India, in September, announced the creation of real estate stressed assets fund. While NPA and NCLT projects were initially kept out of the purview, the government on November 6  modified the scheme after consulting various stakeholders. Even as we await detailed guidelines, the broad framework, based on the latest Government announcement, is as follows:

  • The initial corpus of the Category –II AIF now stands at Rs 25,000 crore. The government will contribute Rs 10,000 crore while the balance, Rs 15,000 crore, will be contributed by SBI and LIC. The fund will be open ended and additional amounts, beyond Rs 25 crore, may be contributed by interested sovereign and pension funds and other public sector banks.

  • The objective of the fund is to enable real estate developers complete stalled projects irrespective of the stage of completion. The revised scheme is more inclusive and provides relief to NPA and NCLT projects as well.

  • Projects which are RERA registered and net worth positive, in the affordable and middle income category, will be eligible for funding. Residential properties priced below Rs 2 crore in Mumbai, below Rs 1.5crore in other large cities (Delhi- NCR, Kolkata, Bengaluru, Chennai, Hyderabad and Pune) and below Rs 1 crore in smaller cities, will be covered.

  • Funds would be disbursed through escrow accounts set up and managed by SBI Caps, who will also evaluate the projects. The government clarified that money released from the Fund can only be used for project completion and not for lender/other payments.

  • Funds will be released in the form of debt, not at one go, but in a phased manner, based on completion of project milestones.


As per the government’s own estimate, the fund will help in completion of 1,600 projects with 4.60 lakh stalled housing units. The availability of ready- to-move in inventory would boost the demand for houses and at the same time bring relief to lakhs of homebuyers awaiting delivery of their homes. Completed projects in turn will generate positive buyer sentiment and push future sales.

Further, not only will the stress fund address the liquidity issue and prevent some of these cases turning into NPAs/NCLT cases, it will also boost buyer confidence in under construction projects given these would be backed by a government sponsored fund. This boost to the real estate sector will also benefit ancillary industries such as steel and cement.

While the detailed rules, regulations and guidelines on the fund are yet to be released, there are some matters which may be considered by the government while framing these.

  • The fund should categorize the projects based on delay and funding required for completion. For instance, projects with minimal requirements (say Rs 10-20 crore of last mile funding) could be the low hanging fruits. Even within projects, funding should be prioritised at a tower level.

  • To increase the overall viability of projects, lenders should be encouraged to agree to a one- time restructuring of project debt.

  • In addition to lenders, existing buyers will also have to be on boarded into the scheme. Legal framework for the eligible projects may need to be streamlined as buyers may have already approached multiple forums such as RERA and consumer courts

  • The fund should not be perceived as a bailout package for errant developers. Relevant authorities need to be appropriately empowered to protect the interests of the buyers, lenders, funds and other stakeholders.

  • Single window approvals will be necessary. All efforts toward financing and completion will go waste if these projects were to get stalled again awaiting key approvals.

  • The fund must onboard experienced professionals for each micro market given nuances typical to each region.


The jury is out as to whether the quantum of the realty stress fund would be sufficient to cover all stalled projects. The first step, however, in solving a problem is recognising the fact that the problem actually exists. With this initiative, the government has recognized and understood that an impetus is needed to revive the sector.

The key to the success however will be in its effective and speedy implementation. The government is yet to announce a definitive timeline for setting up this fund and delays beyond a point may defeat the purpose. Other measures, including those for boosting customer demand, making bank funding available to the sector, formulating an urban house rental policy etc. should also be evaluated. All these measures, together, will go a long way in reviving the sector and giving the necessary impetus to the economy.
The author is partner, Grant Thornton India LLP

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First Published on Nov 8, 2019 10:59 am
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