On Wednesday, the government approved the final structure of an Alternate Investment Fund (AIF) which will provide funding for stalled housing projects in some of the major metros in the country. That’s a positive measure, which, with its promise of a multiplier effect, could help kickstart a sputtering economy. The proposed fund will have a corpus of Rs 25,000 crore to start with, with the government providing Rs 10,000 crore, while the State Bank of India and Life Insurance Corporation of India contribute the balance to ensure last mile funding for housing units worth less than Rs 2 crore in Mumbai and Rs 1.5 crore in the Delhi-NCR area and a few other metros and Rs 1 crore for other parts of the country. The government reckons that the corpus of the AIF would swell once other investors, such as sovereign wealth funds and pension funds besides banks and institutional investors, participate and unlock a good number of the 4.58 lakh housing units spread across 1,600 stalled projects in the country.
It is also good that the government has carried out design changes to the original proposal first announced in September this year, which restricted access to this fund only to projects which were at least 60 per cent complete, and were non-NPA and non- National Company Law Tribunal (NCLT) projects, which meant that the original proposal would have been a non-starter. Instead, the government has specified that even projects which are now under the insolvency process but where liquidation has not been initiated could be eligible, provided they had a positive net worth. The intentions are no doubt good, yet it is not clear how some of the stalled projects, especially the NCLT ones, will be untangled with this condition linked to a positive net worth. During a previous downturn over a decade and a half ago, a group of housing finance firms and some developers had joined hands for completing some last mile projects, which yielded them dividends once the slowdown was reversed. But the scenario is different this time.
Many shadow banks or NBFCs which had also funded developers are now struggling with the snapping of liquidity support after the collateral impact of the IL&FS collapse. Coupled with that is the challenge of a huge inventory of unsold homes in some of India’s major cities and the issue of demand, except perhaps in the affordable home category. An AIF featuring multiple investors will surely have to generate positive returns, which presupposes an experienced and professional team with more housing industry and operational experience and with adequate safeguard protection against fishing expeditions by investigative agencies looking to further expand their turf. But for a broader impact, it is important for the government to foster an enabling economic environment and repose far more trust in wealth creators, to get the economic engine firing again before these projects are completed, so that it becomes a virtuous cycle.