NEW DELHI :
The government on Wednesday approved a plan to set up a ₹25,000 crore alternative investment fund (AIF) to revive stalled housing projects, as it seeks to provide relief to distressed homebuyers and rekindle animal spirits in the ailing realty sector.
While the government will invest ₹10,000 crore in the fund, the remaining ₹15,000 crore will come in from State Bank of India, Life Insurance Corporation of India and other such institutions, finance minister Nirmala Sitharaman told reporters after a Union cabinet meeting on Wednesday.
Incomplete housing projects worth less than ₹2 crore per unit in Mumbai, ₹1.5 crore in other metros, including the national capital region (NCR), and ₹1 crore in other parts of the country will benefit from the move, Sitharaman said. The funds will be used to complete stalled projects.
“The projects need to be registered in RERA (Real Estate Regulation and Development Act) and their net worth should be positive. Even if the project has been declared an NPA or dragged to NCLT but not asked for liquidation will also benefit," she added.
Property developers have been struggling with dwindling sales, piling inventory and falling prices, even as funding for projects has dried up, with banks reluctant to lend to real estate projects fearing defaults. The prospects of the industry have turned worse since the ban on high-value currency notes in November 2016 and the implementation of the goods and services tax in July the following year.
When Sitharaman last announced a package for the housing sector in September, the government barred projects that have been declared as defaulters or are facing bankruptcy proceedings from availing the benefits of the scheme. Defining mid-income housing by indicating the eligibility of projects based on price points across property markets will benefit premium projects.
This expands the scope of including more projects under the new corpus. The government has taken a big step by allowing projects undergoing insolvency proceedings to benefit from the distressed fund scheme, said Anuj Puri, chairman of Anarock Property Consultants Ltd.
“The government has realized that something needs to be done for the realty sector. This step will definitely improve the sentiment of the real estate market because this is the first time that such a measure has been taken for stalled projects," said Puri.
Sitharaman said 1,600 housing projects and 458,000 housing units are stalled due to lack of funds. Of the stalled units, around 200,000 are in NCR, around 100,000 in Mumbai and the rest in smaller cities, according to estimates by analysts.
Real estate projects worth ₹1.8 trillion are stalled across India, according to Anarock Property Consultants.
The focus on real estate is part of the government’s broader plan to kick-start economic growth, which slowed to a six-year low of 5% in the quarter ended 30 June.
Economic affairs secretary Atanu Chakraborty said the net worth of projects will be considered positive if their cash flow is higher than their project cost. “Most of the projects are viable projects, but their problem is of liquidity. The government had to intervene because there was some amount of market failure and liquidity crunch that had happened," he added.
SBICAP Ventures Ltd will run the AIF and ensure the funds are utilized only for completion of the intended projects.
AIF is a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, for investing them in accordance with a defined policy. The real estate AIF cleared by the cabinet is a category II AIF and will not undertake borrowing activities other than to meet day-to-day operational requirements.
“The extension of this benefit to mid-income projects beyond the affordable housing segment is a critical step forward," said Shishir Baijal, chairman and managing director of Knight Frank India.
Madhurima Nandy from Bengaluru contributed to this story.