Govt Offers Rs 25K-Cr Bailout Package To Stuck Housing Projects
In a move that might end the agony of lakhs of homebuyers who are forced to pay EMIs even as they pay rent due and help a sector that has failed to spring back to normalcy in the past couple of years owing to a prolonged slowdown, the cabinet on November 6, 2019, approved the setting up of a stress fund to help stuck housing projects. The Rs 25,000-crore Alternative Investment Fund (AIF) is expected to help as many as 4.58 lakh affordable and middle-income housing units see completion.
The late evening announcement by finance minister Nirmala Sitharaman after a cabinet meeting is a modified version of another such announcement which was made in mid-September this year, in which she declared that the government meant to offer a helping hand to revive growth in the country’s second-largest employment generating sector. Despite the many attempts made by the government as well as the developer community, home sales in India’s major markets have continued to fall quarter after quarter in the past five years, severely impacting the overall economic growth.
To ensure that a larger number of projects are able to benefit from the fund, the government has modified the earlier plan and has said that projects that have been declared non-performing assets or builders who are facing insolvency proceedings at the National Company Law Tribunal, would also be able to get help from the AIF. A RERA (Real Estate Regulatory Authority) registration and a positive net-worth remain the only criteria for a stuck project to avail of the funds. The government has, however, clarified that projects facing litigation in higher courts would not be able to get funds from the AIF — this means housing projects by insolvency-hit Jaypee, Amrapali and Unitech cannot avail of funds. The finance ministry has also capped the highest funding of a single project at Rs 400 crore.
Housing projects that have units worth less than Rs 2 crore in the Mumbai Metropolitan Region would be eligible to get funds from the AIF. In other mega cities including the Delhi-National Capital Region (NCR), projects with units worth less than Rs 1.5 crore would be eligible. In the remaining parts of the country, projects with units that cost less than Rs 1 crore each, could ask for money from the bailout package. The size of units across the country has been capped at 200 square metre.
"Now, the only criteria for a project to get funds is positive net-worth. This will ensure that the fund is actually deployed to incomplete projects which are even NPA or also in the NCLT. We are certain that a majority of stuck homebuyers will benefit from the announcement," CREDAI chairman Jaxay Shah said in a statement.
“This will be a win-win for homebuyers and real estate developers, as it will help alleviate financial stress faced by homebuyers who have invested their hard-earned money, while also releasing funds stuck in such delayed/ stalled projects for productive purposes. However, the devil in the detail in this case will be quick implementation,” points out Naredco president Niranjan Hiranandani.
While the government would provide Rs 10,000 crore for the AIF, public-run State Bank of India and Life Insurance Corporation would together give Rs 15,000 core for setting up the bailout package. The government expects the size of the AIF, which will be managed by SBI Cap, to grow in the future as new sovereign and pension funds are likely to join in. The money from the funds will be released in stages through an escrow account.