Booster for real estate: Government introduces Rs 25,000 crore alternative investment fund

Union finance minister Nirmala Sitharaman on Wednesday said the Narendra Modi government has introduced a special window to provide priority debt financing for the completion of stalled housing projects in the affordable and middle-income housing sector. The government will invest Rs 10,000 crore in the Rs 25,000 crore alternative investment fund (AIF).

For the purposes of funds to be set up, the government shall act as the sponsor and the total funds committed by the government, as stated, would be up to Rs 10,000 crore. The funds will be set up as Category-II Alternate Investment (AIFs) fund registered with Sebi.

Net-worth positive.

Affordable and middle-income housing project.

On-going projects regd with RERA.

Reference by the existing lender.

Include stressed projects classified as NPA and NCLT.

This will finance 1,600 stalled housing projects comprising 4.58 lakh housing units across the country, she added.

The finance minister said that she has spoken to SBI, LIC and several sovereign funds to take the corpus of realty alternative investment fund to Rs 25,000 crore.

According to the finance minister, the fund will be used to complete housing units worth less than Rs 2 crore/per unit in Mumbai Metropolitan Region, Rs 1.5 crore in Delhi-National Capital Region (NCR), Pune, Ahmedabad, other metros and Rs 1 crore in other cities.

Also, the SBI Capital Markets will run the AIF through an escrow account.

"The move will help relieve financial stress faced by a large number of middle-class homebuyers who have invested their hard-earned money," Sitharaman said, "This will also release a large number of funds stuck in these projects for productive use in the economy."

Earlier, the union cabinet has approved the establishment of 'Special Window' to provide priority debt financing for the completion of stalled housing projects in the affordable and middle-income housing sector.

The move is aimed at generating employment as well as reviving demand of cement, iron and steel industries. It is also aimed at relieving stress in the major sectors of the economy.

The fund size would increase as the sovereign and the pension fund are expected to participate in this AIF. The AIF can be utilised even by the projects which have been declared non-performing assets or are facing insolvency proceedings, Sitharaman added.

Meanwhile, Keki Mistry, vice chairman and chief executive officer of HDFC called the government's Rs 25,000 crore fund for the realty sector as a very significant move.

"When the finance minister had announced this fund in September, I had mentioned that one of the most important things, which needs to be done is that the money from the fund should be made available to projects, which are non-performing loans (NPLs)," Mistry said.

Rajnish Kumar, SBI chairman, said, "Rs 20,000 crore is a fairly significant amount in terms of the investment horizon and it will be good that this fund gets operationalised as soon as possible. If Rs 10,000 crore comes from the government, it may not be very difficult to get another Rs 10,000 crore with the government being the sponsor. I don’t see an issue that the fund cannot be closed quickly and the investment can start. But all the nitty-gritty and setting up the fund and registering it with Sebi, all those formalities will need to be completed. However, this is the need of the hour and as an industry, as a lender we are looking forward to it.”

Samir Jasuja, founder and managing director at PropEquity, said, "The biggest change that has been made is that the projects that are non-performing assets (NPAs) and National Company Law Tribunal (NCLT) have been included. That means almost 80 percent of the projects that have been stuck out of the 1,600 will see funding being opened up to them and most of them have been coming from the NCR and the Mumbai region."

Satish Magar, president, CREDAI, said, "This was the demand we were making as NPAs or NCLT projects which are not going to the resolution needed to boost the most. With these two conditions being modified, a lot of good is going to happen as these projects are stuck because of lack of liquidity, NBFC crisis or another crisis.”