Insights into Editorial: Real estate shelter: On Alternative Investment Fund
The Union Cabinet has approved the creation of an Alternative Investment Fund (AIF) of Rs.25,000 crore to provide last-mile funding for stalled affordable and middle-income housing projects across the country.
The Cabinet decision amends the original announcement by allowing housing projects that have been classified as non-performing assets (NPA) and that are under National Company Law Tribunal (NCLT) proceedings also to be eligible for financing.
The fund size will initially be Rs.25,000 crore with the government providing Rs.10,000 crore and the State Bank of India and the Life Insurance Corporation providing the balance.
The fund is not capped at Rs.25,000 crore and will likely grow as a lot of sovereign funds have shown interest.
Real Estate Sector Importance:
- The real estate sector is not only one of the biggest providers of jobs but also has a huge multiplier effect in the economy.
- Industries ranging from cement and steel to paints and sanitaryware stand to reap the benefits of a healthy real estate sector. This is apart from banks and financial institutions.
- What makes the scheme good is that it will also apply to projects that have been declared as non-performing assets by banks and to those lined up before the insolvency court.
- Apart from real estate promoters, this will also aid lenders, mainly finance companies and banks, whose funds are locked up in these projects.
- Most of the stalled projects are solvent but stuck for liquidity and with support from the AIF, can be completed, unlocking value not just for buyers but also precious cash for the project promoters and their lenders.
RERA (Real Estate Regulation & Development Act):
- RERA is aimed at establishing real estate regulatory authority for regulating and promotion of the real estate sector, ensuring efficient and transparent transactions and establishing an adjudicating mechanism for speedy dispute redressal, thereby protecting the interests of consumers.
- It seeks to address vital issues of fair transactions, timely delivery and quality construction.
- The regulation has come as a big relief in the backdrop of lakhs of aggrieved home buyers across India protesting against long delays in delivering their homes in which they have invested their hard-earned money.
- Earlier, home buyers would fall prey to unscrupulous builders, luring them to invest in unapproved projects, promising high returns.
- But now under RERA, buyers interests are protected as only registered developers can launch projects.
- Moreover, developers cannot launch and advertise their projects and seek customers bookings, without getting all the required permissions from the authorities.
- They are also barred from arbitrarily charging the booking amount as under the new regulation, booking amount has been fixed at 10 percent of the property cost.
Housing sector in India: Need of Alternative Investment Fund (AIF):
According to the government’s estimates, there are more than 1,600 housing projects in which 4.58 lakh crore units are stalled.
All affordable and middle-income housing projects that are net worth positive and are registered with the Real Estate Regulatory Authority (RERA) and that have not been deemed liquidation-worthy will be eligible.
The AIF is expected to pool investments from other government-related and private investors, including public financial institutions, sovereign wealth funds, public and private banks, domestic pension and provident funds, global pension funds and other institutional investors.
Right Implementation is the need of the hour:
While the AIF is a good idea, it is important that it is implemented without glitches. Too many good ideas have suffered due to bad implementation.
The critical part will be identifying the genuine projects in need of support and ensuring that biases do not creep in.
It is not clear, whether sovereign funds and other private investors will really show interest or not.
Also, important will be attracting more investors into the AIF.
These need to be followed upon quickly and money should be released from the AIF right away so that the trickle-down effect is felt before the end of this financial year.
Along with private money in the AIF will also come return expectations that need to be managed.
The fund is therefore expected not only to support the sector but also generate commercial return for its investors.
The government further expects this fund to not only ease the stress in the real estate sector but also in other major sectors of the economy as well.
The creation of special window for affordable and middle-income housing projects would revive the real estate sector and generate considerable employment.
Besides, revival of the sector will also lead to demand of cement, iron & steel industries giving further impetus to generate more employment.
This initiative will have a positive effect in releasing stress in other major sectors of the Indian economy as well.