Status as on- 16/11/2019
The real estate industry has been a constant concern for all interested parties. The decline of big names like Amrapali, Jaypee, Supertech along with many others around the country, has left lakhs of homebuyers in the lurch. Lending institutions have seen unprecedented rise NPA’s in recent years and infrastructure valued in lakhs of corer remains in unfinished limbo, over 4.5 lakh units in as many as 1500 projects still remain pending. This situation looks like a dark cloud over our economic stability.
WHAT IS A STRESS FUND OR ALTERNATIVE INVESTMENT FUND (AIF)
The government has shown grave concern regarding pendency in the real estate sector and on 6th November Finance Minister Nirmala Sitharaman announced a government-funded stress fund for unfinished projects. This Rs. 25,000 crore fund will be constructed as an Alternate Investment Fund (AIF) under category II and will be registered with SEBI. This makes it possible to manage this fund through a professional body. Finance Minister stated the government is planning to invest a sum in tune of Rs. 10,000 crores and expects LIC and SBI to step in with the remaining amount. Dinesh Kumar Khara, MD of SBI further assured that SBI is ready to step in with 10% of the total funds, SBICAP will also be made responsible for managing the investment of this fund.
WHO WILL THIS FUND BENEFIT
This fund will focus on providing last-mile funding to RERA registered projects that are Net Worth positive. The fund will focus on affordable housing projects only; this means units under Rs. 2 cr in Mumbai, 1.5 cr in Delhi and 1 cr in rest of the country will come under the purview of this fund. It was also announced that funding for a single project will be capped at Rs. 400 crores. Mumbai is said to be the biggest benefactor of this fund with many small scale projects close to completion looking to get last-mile funding, most of these projects are concentrated in Mumbai Metropolitan Area.
NO RELIEF FOR BIG-TIME DEFAULTERS
It has been made clear that funding criteria will be followed strictly and any projects and builders whose matters are already pending in higher courts will not be eligible for funding. The government has already declared Amrapali, Jaypee, and Unitech as ineligible for funding. This has come as a big surprise for almost 35000 affected customers of Amrapali who have already decided to challenge this exclusion in court.
POSSIBLE RELIEF FOR PROJECTS UNDER INSOLVENCY
Projects whose matters are taken up by NCLT may still have a chance to get funded. If a project is capable of commencing construction immediately it might be considered. This will require the involvement and approval of the Committee of creditors (CoC) as the involvement of any AFI will decrease priority in payments for existing creditors. AIF funding is considered special funding and investors get first priority in payment this is done to ensure the security of their funds as AIF’s do not get any rights over assets but only payment priority.
This stress fund comes as a big relief for homebuyers around the country, completion of pending projects means delivery for thousands of homebuyer’s fresh infusion of funds in the economy. This just might be the push that the Real Estate sector has been so desperately looking for all this while.
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