The Cabinet on Wednesday cleared the structure of the proposed exclusive alternate investment fund (AIF) for the real estate sector with an initial corpus of Rs 25,000 crore, more inclusive terms and a commitment to continue to provide more budget funds, in addition to the initial Rs 10,000 crore, as and when demand arises.
Since the September announcement of the plan, State Bank of India and LIC have agreed to contribute a total of Rs 15,000 crore to the AIF, the mandate of which is to enable completion of the stuck, liquidity-starved housing projects, mainly those in the affordable and middle-income categories.
Finance minister Nirmala Sitharaman said some sovereign wealth funds and pension funds have also expressed interest in the AIF, which would have a pass-through status under the Income Tax Act. Over 1,600 housing projects with 4.58 lakh housing units are now stalled.
The minister said that the only exclusion criterion for receiving funds from the dedicated AIF would be not having positive net worth status at the project level. This means most of the stalled projects would be covered, irrespective of the solvency status of the promoter.
Even the projects of firms that are already under the insolvency process could resort to the fund, provided liquidation hasn't been initiated. The RBI would clarify on how the new mechanism for completion of stalled housing projects would be incorporated into its norms for stressed assets and NPAs. The central bank has been consulted on the matter also because besides SBI, more public-sector banks might contribute to the AIF corpus, which is not capped.
As the investment manager, SBICAP Ventures would decide on the eligibility of each projects for AIF funds and stagger the release of funds from escrow accounts to ensure that the monies are utilised strictly for the intended purpose.
Jaxay Shah, national chairman of real estate body Credai, said the clarification that even NPA projects and those in NCLT could seek AIF support was a very welcome change from the initial announcement. "We are certain that a majority of homebuyers would benefit. Quick deployment of money and efficient decision making for qualification of projects will solve the long-pending problems of homebuyers".
As per rough estimates, housing projects worth Rs 1.8 lakh crore are either categorised as NPAs or have been dragged to the NCLT. When Sitharaman announced the AIF mechanism in September, she said these projects would be excluded from its purview.
Dhruv Agarwala, group CEO, Elara Technologies, said, "The decision will be a big relief not only for the consumer whose house delivery is stalled but also for the builders who were desperate to raise funds to complete their projects but unfortunately couldn't complete them because of lack of funds. This will also encourage prospective buyers who have delayed the buying decision, waiting for some positive news for the sector."
To ease funding for housing developers, external commercial borrowing (ECB) guidelines are being relaxed to help them obtain overseas funds. Such norms will also be eased to facilitate financing of homebuyers who are eligible under the Pradhan Mantri Awas Yojna, after consulting the central bank. Similarly, the interest rate on housing building advance has been lowered and linked to the 10-year G-sec yields. As per the ANAROCK data, a total of 5.76 lakh units (launched in 2013 or before) across budget segments are stuck in various stages of non-completion in the top 7 cities alone.