The government has committed  ₹10,000 crore towards the real estate fund
The government has committed 10,000 crore towards the real estate fund

How the 25,000 crore fund for incomplete flats will work: 10 points

  • The fund will release funds to developers in stages and funds can only be utilised for completion of the project
  • The RBI is expected to soon issue a note so that home buyers who had stopped paying EMIs can regularise payments

In a relief to lakhs of flat owners who are stuck with incomplete flats, the government on Wednesday approved a 25,000 crore fund to help complete over 1,600 stalled housing projects. The move is likely to help 4.6 lakh flats across the country. The government will act as the sponsor of the fund and in the initial phases has committed 10,000 crore. The remaining will be contributed by state insurer LIC and the country's largest lender SBI and other financial institutions.

This fund will provide relief to developers that require funding to complete unfinished housing projects. Sovereign and pension funds would also be allowed to contribute to expand the size of the fund, Finance Minister Nirmala Sitharaman said.

Here are 10 things to know about how the 25,000 crore fund will work:

1) Finance minister Nirmala Sitharaman had in September announced that a special window for affordable and middle-income housing will be created for providing last-mile funding for incomplete housing projects. But it had barred projects that have been declared as NPAs or non-performing assets or are facing bankruptcy proceedings.

2) However, the government has now removed those conditions. Even if a housing project has been declared non performing asset but liquidation has not been announced will be eligible to benefit from this fund.

3) This fund will cover incomplete projects where unit cost or flat cost is less than 2 crore in Mumbai, less than 1.5 crore in NCR, Chennai, Kolkata, Hyderabad, Bengaluru, Ahmedabad, Pune and less than 1 crore in rest of the country.

4) Another condition is that the projects need to be registered under RERA or Real Estate Regulation and Development Act and their net worth (cash flows minus project cost) should be positive.

5) The fund will release funds to developers in stages through an escrow account.

6) This means funds can only be utilised for completion of the project.

7) The banks cannot recover their earlier loans from this fund. The fund will be only used for completion of the project, said the finance minister.

8) The fund will give priority to projects that are near completion. The finance minister cited an example to explain the working of the fund. Say, a project which has three towers and Tower 1 has been 70% completed, Tower 3, 50% completed and work on Tower 2 has not started. The fund will give priority to Tower 1 and then Tower 3. Tower 2, where work has not been started, will not get funding.

9) The finance minister said that the government is seized of the problem faced by homebuyers who are forced to pay EMIs on loans taken for buying homes but have not yet got possession and continue to shell out both loan installments and rent. The RBI will soon issue a note so that home buyers who had stopped paying EMIs can regularise payments.

10) Analysts have welcomed the setting up of this fund. "The proposed fund is better than the earlier one since this also includes projects referred to NCLT. This will be beneficial not only to the stressed real estate sector but also to the home finance and NBFCs which have lent to developers. The announcement also sends the signal that more economic reforms are in the offing," said VK Vijaykumar, chief investment strategist at Geojit Financial Service.