FM Nirmala Sitharaman Announces Rs 25,000 crore Fund for Stalled Housing Projects
Providing huge relief to a large number of home buyers, Finance Minister Nirmala Sitharaman on November 06 announced a Rs. 25,000-crore Alternative Investment Fund for stalled housing projects to ensure delivery of homes to buyers. She announced the creation of a ‘Special Window’ to provide relief to developers with unfinished projects for completion of stalled housing projects in the Affordable and Middle-Income housing sector.
FM Nirmala Sitharaman announced the government will put in Rs. 10,000 crore in the Alternative Investment Fund (AIF) to help the housing sector complete unfinished residential projects. Addressing a press briefing after the cabinet meeting, she said that institutions like State Bank of India (SBI) and LIC would jointly add another Rs. 15,000 crore, taking the corpus to Rs. 25,000 crore. Moreover, the size of the Fund would increase further with participation from sovereign and pension funds.
Addressing the media, the Finance Minister said that a lot of homebuyers have approached us. They are stuck in a situation where they have paid an advance but don’t have their housing units built. The ministry has estimated that approximately 1,600 stalled residential projects comprising 4.58 lakh housing units across the country are stuck at various stages of non-completion.
She further said that the move will help in relieving financial stress faced by a large number of middle-class home buyers who have invested their hard-earned money. The liquidity crunch in the system has halted building projects that have left numerous home buyers stranded even after paying their monthly installments. This special window, the minister said, will enable home buyers to get delivery of homes locked in stalled housing projects.
The announcement by the government comes at a time the country’s real estate sector is struggling against low demand amid a liquidity crunch following a series of debt defaults by non-banking finance companies. Developers finding it difficult to raise funds after the default by the IL&FS group last year. This has led to low demand, causing a huge pile-up of inventories in the housing sector and pushing the ongoing projects to a standstill.
She added that she has met with home buyers, other stakeholders and the RBI governor to come up with a mechanism to help the people who are affected in the realty sector. Nirmala Sitharaman had earlier said the government and RBI are working to resolve the issues being faced by the realty sector.
The move is expected to provide relief to the slump-hit housing sector and cheer up those who have been affected by the stalled residential projects.
New Eligibility Criteria
Now more stalled residential projects will benefit from this measure as the eligibility criteria have also been relaxed to cover them under this scheme. The finance minister said that even the projects which have been declared non-performing assets (NPA) by banks and those facing insolvency proceedings under the arbitration of NCLT but not announced as liquidation worthy can be covered under the Alternative Investment Fund (AIF) scheme.
Now the main criteria for eligibility under this scheme are that the project’s net worth must be positive. This will ensure that the fund is actually deployed to complete incomplete projects which are even NPA or also in NCLT.
In September, the government had announced the plan to provide an Rs. 10,000 crore last-mile funding to affordable and middle-income housing projects for completion of ongoing housing projects. However, as per the proposal then, these projects should not have been an NPA or facing bankruptcy proceedings under NCLT to get funding.
Management of Alternative Investment Fund
Funds created under the Special Window will be set up as priority debt funds. These AIF funds would be entrusted to experienced professionals and industry experts. For the first AIF under the Special Window, it is proposed that SBICAP Ventures Limited shall be engaged as the Investment Manager. SBI Cap will manage the real estate AIF initially through an escrow account. It will prioritise the projects as per viability and the funds for any project will be deposited into the escrow of that particular project in a phased manner depending on the rate of completion of construction, she said.
The special window would provide funds into an escrow account for the stalled projects and only those which are RERA registered will be allowed to get money from the fund. The idea behind putting the money in an escrow account is to ensure that the fund gets utilized and ensure delivery of homes to a large number of homebuyers.
Every project in any part of the country can avail of the funding if it meets the criteria. The AIF fund will be used to complete RERA-registered incomplete housing projects with a net worth less than Rs 2 crore in Mumbai Metropolitan Region, Rs 1.5 crore in Delhi-NCR, Chennai, Kolkata, Pune, Hyderabad, and other big cities, and Rs 1 crore in other parts of India.
Homebuyers and developers to cheer AIF
It is a very welcome move as announced by the FM Nirmala Sitharaman to create AIF of Rs 25,000-crore to ensure that the fund is actually deployed to complete incomplete residential projects which are even NPA or also in NCLT. Now the only criteria for eligibility are net worth positive projects. A majority of stuck homebuyers will benefit from the announcement of a Rs 25,000 crore stress fund which is going to be increased in value.
The finance minister said this move is aimed at reviving the real estate sector and generating considerable employment. The move is aimed at releasing a large amount of funds stuck in the housing projects for productive use in the economy. Besides, the revival of the real estate sector will also lead to higher demand for cement, iron and steel industries, as they contribute to building infrastructure. This initiative will have a positive effect in releasing stress in other major sectors of the economy as well.
This will also restore trust between buyers and developers and boost the sentiments of the housing sector as a whole. Therefore, the announcement will prove to be a win-win situation for both home buyers as well as the real estate sector.
Also read: FM Nirmala Sitharaman announces Rs 10,000 cr stress fund for stuck housing projects
FM Nirmala Sitharaman Announces Rs 25,000 crore Fund for Stalled Housing Projects
