The Union Cabinet Wednesday approved setting up a special fund to provide last-mile funding to housing projects stuck across the country. The total fund size is estimated at over Rs 25,000 crore with the Centre putting in Rs 10,000 crore, and State Bank of India and LIC injecting the balance amount into the fund in due course.
Funding will be provided only to those projects that are net worth positive and registered under RERA or The Real Estate (Regulation and Development) Act. Stuck projects classified as Non Performing Assets and those undergoing resolution under the National Company Law Tribunal will also be eligible for funding — a change from an earlier proposal which barred such projects from support.
Announcing details of the proposal, Finance Minister Nirmala Sitharaman said the government has held a series of discussions with home buyers, bankers, Reserve Bank of India and the real estate companies to work out a “sustainable and viable” development model for homebuyers. She said the size of the fund can grow past Rs 25,000 crore as sovereign wealth funds and pension funds are also keen to join.
Why this opens a window
A special fund to provide last-mile funding for viable housing projects stuck across the country is expected to alleviate stress for homebuyers, real estate players as well as banks that have backed these projects. The government has also allowed funding for those projects that have turned NPA or are undergoing resolution under IBC, but are net worth positive. This will provide a larger play to the Rs 25,000-crore fund.
A day earlier, speaking at the Express Adda in Mumbai, Sitharaman had said: “In real estate, we have started working on some proposals… we will have an offer for home buyers. Soon we will come to a stage to offer some solutions to them.”
An estimated 1,600 projects involving 4.58 lakh housing units are stuck across the country for want of last-mile funding.
The funds will be set up as Category-II Alternate Investment (AIFs) Fund registered with the Securities and Exchange Board of India (SEBI), and managed by professional fund managers. For the first AIF under the special window fund, SBICAP Ventures Limited has been proposed as the investment manager. The fund is expected not only to support the sector but also generate commercial return for its investors, the government said.
“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 government said.
The funds will provide money in escrow accounts that can be used only for completion of the identified projects while the receivables from the project will be used to repay the fund. Sitharaman had announced setting up such a fund on September 14 and the scheme has now been finalised after consultations.
A detailed investment policy will also be laid down for the selection of projects after a detailed due-diligence process that will include legal due-diligence, title due-diligence, micro-market analysis and financial analysis. An Investment Committee of the each fund will take decisions relating to the projects.
CREDAI national chairman Jaxay Shah said: “It’s 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. 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.”