Government Tweaks Housing Rescue Fund To Include NPAs And Insolvent Projects

The Cabinet today approved an earlier announced scheme to provide funding relief to stalled housing projects across India, albeit with some tweaks.

The government will establish a special window to provide priority debt financing for the completion of stalled housing projects in the affordable and middle-income housing sector, said the government statement following a briefing by Finance Minister Nirmala Sitharaman. A government study has assessed that over 1,600 such housing projects are stalled, totalling 4.58 lakh housing units.

Using this special window of Rs 10,000 crore, an alternate investment fund will be set up with government as sponsor. State Bank of India and the Life Insurance Corporation are also expected to contribute to the AIF. The starting corpus is expected to be Rs 25,000 crore, said the finance minister. As stated over a month ago, the government expects participation from sovereign and pension funds and other institutional investors.

The AIF will be entrusted to a professional investment manager - SBICAP Ventures Ltd.

The government statement said the last mile funding will be for projects that meet the following criteria:

• Affordable and middle-income housing project
• Reference by existing lender
• On-going projects registered with RERA
• Net-worth positive
• Will include stressed projects classified as NPA and those in NCLT

When the Finance Minister had first announced this funding mechanism in September, the eligibility conditions excluded projects that had been labelled non-performing or which were in insolvency proceedings. Those two conditions have now been withdrawn.

The AIF will fund stalled projects via escrow accounts. The process to be followed is:

• A detailed investment policy to be laid down to guide selection of projects
• Due diligence will include legal due-diligence, title due diligence, micro-market analysis, financial analysis, etc
• The AIF investment committee, comprising of experienced professionals and industry experts, will approve individual deals
• The investment process oversight will be entrusted to an advisory board.
• A governing council may also be formed for strategic guidance
• The investment manager will be responsible to ensure that the funds are used only for construction through appropriate safeguards

Watch | Key highlights of the special fund for stalled realty projects.

Builders, Homebuyers Reactions

Builders and homebuyers welcomed the change in eligibility criteria as it now widens the scope of projects that will benefit.

Jaxay Shah, National Chairman of industry body Confederation of Real Estate Developers Association of India, said that with the change in eligibility majority of the stuck homebuyers will benefit. Besides, a larger corpus which can be further increased is also welcomed, he said.

This will bring in even more stalled projects into the eligibility criteria and give relief to more aggrieved homebuyers, agreed Anuj Puri, chairman of ANAROCK Property Consultants.

Abhay Upadhyay, President of the Forum For People's Collective Efforts which represents homebuyers, said that the government now should also name the 1,600 stuck projects it has identified so that it will give customers more surety.

“The government should ensure that the money from the escrow account is not given directly to builders,” Upadhyay added.

This scheme does not address the real issues of homebuyers as well as developers, said Nayan Shah, president of industry body CREDAI-MCHI. The government should direct lenders to re-structure the existing loans of the developers, he said.

Approximately 35-40 percent of genuinely stuck projects with repayment potential will benefit from this fund, said Pankaj Kapoor, managing director of realty consultant Liases Foras.

“In my estimation the government will need Rs 70,000 crore to take care of all stuck projects,” he added.