The government will set up the Rs 20,000 crore fund to provide last mile funding to the stuck housing projects on the lines of the National Investment and Infrastructure Fund (NIIF).
The fund will be professionally managed by experts who will examine the projects that can get funding. Domestic institutions as well as global wealth funds, sovereign funds will be invited to participate as equity partners in the fund. Sources said prior to investment in the stuck project, the Fund would require the existing bankers to the project to enter into an Inter-Creditor Agreement (ICA) that will safeguard the interests of the lenders. The proposed housing fund will provide equity, quasi equity, structured debt and secured loans to projects across the country.
While the projects that have not turned into non-performing assets and are not under NCTL will benefit, analysts note that most stressed projects will not get any funding support.
Only those projects that have a positive net worth, where construction is 60 per cent complete, and belong to the affordable and mid income category, stand to benefit from the fund. Out of total 8.5 lakh dwelling units that are stuck around the country for want of resources, the proposed Fund could potentially benefit 3.5 lakh dwelling units across the country, as per the Finance Ministry estimates.
The proposed Fund will be set up as a Category II Alternative Investment Fund registered with the Securities and Exchange Board of India. Real estate funds, private equity funds, funds for distressed assets are typically registered as Category II AIFs. These funds do not take borrowings or leverage except for meeting day-to-day operational requirements.
“This funding for non-NPA and NCLT projects would not only arrest the rise of NPA’s but also reduce the NCLT & RERA (Real Estate Regulation and Development Act) complaints overall. This is will provide relief to the customers and help restore confidence in the housing sector. The housing sector requires funding of over Rs 300,000 crore and this decision is the first step to infuse liquidity in the sector,” said Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Ltd.
According to PropEquity while there are approximately 13.8 lakh units in the mid to affordable category that are approximately 60 per cent complete and due for completion in the next 2 years, around 7.4 lakh units are stressed and in need of aid. The report said that while around Rs 90,000 crore fund is required for a total of 7.4 lakh units that are stressed, the current fund allocation when fully utilised will aid in completing approximately 1.6 lakh units, of which approximately 55 per cent are sold/absorbed. “This translates to approximately 91,000 units bought by consumers getting relief,” said the PropEquity report.
Even Pankaj Kapoor, founder and MD of Liases Foras Real Estate Rating & Research said that according to estimates, around 60,000 units may benefit from this decision. “As per our study, majority of the funding is required by projects that are at around 25 per cent completion stage. As per our estimates, around 50,000-60,000 will be eligible from this kind of funding from the government,” said Kapoor.