In a bid to rescue the Indian real estate industry, Finance Minister Nirmala Sitharaman recently announced a bailout of Rs 25,000 Crore. The government will invest Rs 10,000 Crores while Rs 15,000 Crore will come from SBI and LIC.
The amount, which will be parked in a specially created Alternate Investment Fund (AIF), is aimed at providing the much-needed financial fillip for the completion of projects in the affordable and middle-income housing bands across the country.
It is hoped that the move will resolve the severe cash crunch that the sector is mired in.
What is the background for this decision?
Currently, there are 1,600 housing projects with 4.58 lakh units that stand incomplete across seven metro cities in India, according to government data released in September 2019. Research from ANAROCK shows that the total value of these unfinished projects amounts to approximately Rs 4,64,300 Crore.
The housing crisis is also one of the chief factors for a 5% slowdown of related sectors like steel, cement, electricity, and natural gas, among others, the data shows.
What are the eligibility criteria for the fund?
The fund will be registered with the Securities and Exchange Board of India (SEBI), and SBICAP Ventures will evaluate, monitor, and release the appropriate amounts. Under the ‘special window’ introduced by the government, priority funding will be provided for
- Stalled affordable and middle-income housing projects
- Ongoing projects that are registered with RERA
- Projects that are classified as non-performing assets (NPA)
- Projects that are part of the National Company Law Tribunal (NCLT) hearings
- Net-worth-positive projects that should have a higher value of receivables and unsold inventory than the total liabilities and cost of completion
The criteria also state that for projects to be eligible they need to be unfinished units worth less than Rs 2 Crore in Mumbai, Rs 1.5 Crore in Delhi-NCR, Bangalore, Chennai, Pune, and Kolkata, and Rs 1 Crore in other cities.
How is the fund expected to help?
With this significant financial injection, the government hopes to create jobs and spark demand for cement, electricity, and other sectors affiliated to housing and construction that have been markedly sluggish.
Will the fund really make a difference?
According to media reports, only about 6% of unfinished units can be completed with the help of the fund. Industry experts also point out that to really stir up demand for housing, there needs to be a price correction.
Reducing prices will stoke interest in consumers who will always be attracted by affordability and value. Additionally, there needs to be a sharper focus on policies, transparency, and other factors that have the potential to revive the real estate sector.
