Rs 25,000-cr boost for realty: Govt sets up fund to revive stalled projects

In order to revive around 1,600 stalled housing projects across the top cities in the country, the Union Cabinet has approved the setting up of a Rs 25,000 crore (US$ 3.58 billion) alternative investment fund (AIF). Finance Minister Ms. Nirmala Sitharaman said that the AIF will act as a special window to offer priority debt financing for completion of projects in the affordable and middle-income categories.

The projects that will be considered for financing from the AIF include the ones declared as non-performing assets as well as those which are undergoing insolvency at the National Company Law Tribunal (NCLT). The funding will only be received if the project is registered under the Real Estate (Regulation and Development) Act or RERA. This move by the government is expected to give significant relief to homebuyers as well as businesses. However, those which have already got orders from NCLT for liquidation will not be considered.

This Cabinet decision is a modified version of an earlier stimulus package which was announced by the FM in September, when NPA and insolvency projects were not considered for financing under AIF. 

This addition of projects under NPA and NCLT proceedings will help cover almost 80 per cent projects in some of the major property markets such as NCR and Mumbai, according to Mr. Samir Jasuja, founder at Propequity, a real estate research firm.

State Bank of India (SBI) and Life Insurance Corporation of India (LIC) will provide an additional fund of Rs 15,000 crore (US$ 2.15 billion) to the category-II AIF, that will be managed by SBI Cap, along with the initial contribution of Rs 10,000 crore (US$ 1.43 billion) from the government which will act as a sponsor. The open-ended fund is expected to increase over time as many sovereign and pension funds are in discussion with the technical management team to join in, Sitharaman said.

The Category-II AIFs typically invest in unlisted companies by raising funds from high net worth individuals (HNIs) and foreign portfolio investors (FPIs) through private equity, debt funds, etc. There are several types of funds under this category such as real estate funds, private equity funds (PE funds), funds for distressed assets and so on. According to the Initial estimates by the finance ministry, it is expected that the AIF will be targeted at completing around 1,600 stalled real estate projects that include over 458,000 unfinished units.

The target is at affordable and middle-income housing units; thus, the fund will address residential properties in Mumbai that are priced below Rs 2 crore (US$ 0.29 million). The cap for other metros like Delhi, Kolkata, Bengaluru, and Chennai, among others, has been set at Rs 1.5 crore (US$ 0.21 million) and for smaller cities, it is at Rs 1 crore (US$ 0.14 million) per unit. Earlier the funds were focused for the projects that were stalled after 60 per cent completion, but now all types of stalled projects regardless of the stage of completion will be considered for financing. To be eligible for funds, they must have a positive net worth at the project level, the minister said.

The money collected for the AIF will be kept at an escrow account and according to the requirement of the project its distribution will be done in a phased manner in a time-bound manner. The access to the capital will not be given to the developers or to the creditors of the project.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.