Union Cabinet approves Special Window fund to bailout real estate sector
Finance Minister Nirmala Sitharaman on 6 November 2019 announced a Rs 25,000 crore Special Window for stalled real estate projects to revive the ailing sector and generate employment. There are 1,600 stalled projects and the total cost to complete these is estimated at Rs 55,000-80,000 crore. The Special Window created for affordable and middle-income housing projects will also cover projects that are classified as non-performing assets (NPA), or where the National Company Law Tribunal (NCLT) proceedings have already started.
The Central government on 14 September 2019 had announced that a Special Window for affordable and middle-income housing will be created to revive the ailing Real Estate sector. The Special Window will provide last mile funding for housing projects which are under stress.
The government will put in Rs 10,000 crore in the Alternative Investment Fund (AIF) and the remaining amount will be provided jointly by the State Bank of India (SBI) and the Life Insurance Corporation of India (LIC). Several sovereign funds have also expressed interest to infuse money, which the government will gradually keep adding to the AIF corpus. The government will act as sponsor for the fund.
The fund will be managed by SBI Capital and aims at 4.58 lakh residential units pending in 1,600 housing projects. The funds from AIF will be released in tranches via an escrow account depending on completion of the approved phase of the project and receivables from the project will be used to repay the fund. Only RERA-registered projects with positive net worth can avail the benefits of this fund. Moreover, project managers will assess the project to determine the time needed to complete it. The funds extended to promoter of stalled projects will be responsible to complete it and deliver the homes to homebuyers. The funds in escrow account cannot be touched even by banks to settle pending dues of a builder.
According to the Ministry of Finance, builders who have been declared NPA, or have been deemed not worthy for liquidation by NCLT, can also benefit from the Rs 25,000 crore fund. The risk assessment ahead of this has already been worked out with banks.
The scheme will cover dwelling units of up to Rs two crore in Mumbai, Rs 1.5 crore in Delhi-NCR, Chennai, Kolkata, Pune, Hyderabad and Bengaluru, and up to Rs one crore in other parts of the country. The funds will be set up as Category-II AIFs registered with the Securities and Exchange Board of India (SEBI). For the first AIF under the Special Window, it is proposed to engage SBICAP Ventures as the Investment Manager.
The project funding will be construction-linked under the scheme. In case the promoter is in jail following NCLT proceedings, the resolution professional will take care of the projects under the scheme. If the project cost is subtracted from the cash flow and the end result is positive, the project will be termed net worth-positive.
A detailed Investment Policy will also be laid down for selection of projects after a detailed due-diligence process that will include legal due-diligence, title due-diligence, micro-market analysis and financial analysis. An investment committee of each fund will take decisions relating to the projects.
The fund will in turn provide relief to developers who require funding to complete a set of unfinished projects and consequently ensure delivery of homes to homebuyers.
Since the Real Estate sector is intrinsically linked with several other industries, growth in this sector will have a positive effect in releasing stress in other major sectors of the Indian economy as well. It will also lead to higher demand for industries such as cement, iron, steel and so on.