Status as on 02/12/2019
Perhaps this article would give you big relief if
- You are buyer in any struck real stopped real estate project, or
- There is an extra-ordinary delay the delivery of your allotted homes, or
- The project is stuck in legal litigation or any other issues, or
- Developer of your project has run-away or locked down
The Central Government has envisioned a unique solution to the present deadlock over stalled and stuck real estate projects. The Union Cabinet on 6 November 2019 established Special Window Fund to provide priority debt financing for the completion of stalled housing projects that are in the Affordable and Middle-Income Housing sector.
STRESS FUNDS AN OVERVIEW
Liquidity problems were stressed as one of the contributing factors to stalled/stuck housing projects, by the developers. Lot of projects has been stopped or struck due to such issues. Now, a new concept of “Stress fund” as Alternate Investment Fund (AIF) Rs. 25,000/- Crore has been announced by the Central Government for the project having possible NPV, which could adequately address the problem.
The main purpose of the fund is two-fold to provide funds to provide support developers and ultimately to homebuyers to complete unfinished projects and to ensure delivery of home to buyers of presently unfinished projects.
STRESS FUND – SET UP
The Government shall be the sponsor and infuse Rs. 10,000/- Crore into the fund, further contributions from LIC, SBI and other Banks shall raise the corpus of the fund to Rs. 25,000/ Crore. The fund shall be Category-II AIF (Alternate Investment Fund) debt fund to provide last mile funding to stressed projects.
SBICAP Venture Limited being the investment manager for the Special Window Fund shall conduct internal financial analysis to see if the project meets the fund’s investment criteria. This shall be further supplemented by external due diligence agencies to cover areas such as title, financial, real estate and legal, among others, including consultation with existing lenders.
HOW SHALL BUILDERS AND BUYERS BENEFITED ?
Since the purpose of this fund is to revive the real estate market by giving them last support to complete the pending or struck project in a time-bound and monitoring method. The details procedures are on its way, based on our understanding, and information till date, we can put the following points :
- Stress Funds shall ensure the renewal of stuck/stalled projects due to lack of construction fund
- Ensure timely possession of homes for home-buyers thereby relieving home buyers from the financial stress of delayed possession.
- Stress Funds shall benefit projects declared as Non-Performing Assets by banks and projects pending insolvency proceedings before the NCLT
- Finance Institutions shall also get relief for funds/investments locked in stuck/stalled projects.
ELIGIBILITY FOR STRESS FUND ?
The Stress fund is applicable to the affordable and middle income-housing sector. The focuses of the Stress Fund are projects that are stalled for lack of construction funds and whose construction can immediately be recommenced if such funds are made available.
Non-Performing Assets and Projects currently undergoing insolvency proceedings under the NCLT whose Resolution Plan has not been approved are eligible for the funding.
The criteria for selection of funds are;
- Stalled for lack of adequate funds
- Affordable and Middle Income Category
- Housing Units do not exceed 200 sq.mt
- Price of the Housing Unit is below;
- INR 2 Crore in Mumbai Metropolitan Region
- INR 1.5 Crore in National Capital Region, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad
- 1 Crore rest of India
- Net Worth Positive Projects i.e. Value of receivables and unsold inventory is greater than the completion cost and liabilities on the project.
- On going Projects registered with RERA
- Reference by existing lenders
STRESS FUNDS A WAY FORWARD
Previous practices of builders and real estate developers of purchasing large swathes of land to build luxury apartments to a limited market unduly stagnated the real estate sector, thus the present focus of the Stress Fund on affordable and middle income housing sector shall have a multiplier effect on the economy. The consequential effect shall also restore trust between homebuyer and the real estate sector through timely delivery of projects.
Due to lack of professionalism and specific monitoring laws, there have been many instances of frauds, and many projects has either been stopped in between or stuck in litigation. Last few years have seen big chaos by homebuyers. Real sector is backbone of economy; hence Government is doing every best either in way to introduce new laws or new AIF funds. We advice to make best of this opportunity.
Disclaimer- The above article is based on the information and interpretation of the related laws, which may differ from person to person. The readers are expected to take expert opinion before relying on this article. For more information, please get in touch at firstname.lastname@example.org or 84-4848-7142