In a follow up to the announcement from the Finance Minister’s office regarding the setting of Rs. Two hundred fifty billion funds, to the likes of Category-II Alternative Investment Funds, Indian builders will now be able to act better towards completing stalled projects for good.
The real estate developers act has already witnessed a series of effects that are not only limited to homebuyers depriving the right to occupy and enjoy possession following the schedule. Besides, it has also led its impact show across entities that have been carrying all such crashed down projects, which brought such housing projects to a standstill.
For decades, there has been no change towards the mentality of developers. As such, they kept asking homebuyers to get into an agreement that accompanied rather harsh terms of payment. Whenever there was a delay in paying the installment, even by a day, it resulted in a whopping rate of interest that prospective homebuyers were in a way forced to pay.
The Indian judiciary, too, bears a witness to such prodigies across several cases like Bikram Chatterjee v. Union of India in case of Amrapali Group, Pioneer Urban Land and Infrastructure and others v. Union of India, Nikhil Mehta v. AMR Infrastructure, and many more.
In all such cases, the homebuyers moved the court to discuss and gain a solid ground of justice, thus addressing the sheer plight of over 1000 homebuyers across the country, over stalled projects.
The developers who were genuine and were keen to complete their ongoing projects were also left with no explanation as the general economy was in a gloomy state. By all means, it became difficult for developers at large to gain assistance from notable financial institutional in India as well from NBFs in the wake of the flak from RBI owing to several lapses for cases like DHFL and IL&FS. It further resulted in making the situation a somewhat chaotic affair and no clear terms to follow regarding the completion of projects.
Special Window Aided Projects
The housing projects that stand eligible to avail the benefits of the fund will invariably have to fall under the criteria set by the government, which include the following:
- Projects registered under RERA (Real Estate Regulation Act)
- Projects which came to stall due to inadequate or lack of funds.
- Projects that are deemed having positive net worth and where the receivable value along with the unsold value of the inventory is much greater compared to the cost of completion and all other outstanding liabilities involving the project.
- Projects that qualify under the affordable or middle-income category. In other words, all such projects which don’t exceed a RERA carpet area of 200sqm. For instance, in the case of a 2 BHK flat, that measures anywhere between 700-1200 sqft.
According to Oswal Group, one such a great option is Orchard-126, located at B.T road in North Kolkata. Also, the cost of such housing unit should be less than or equal to INR 20 million in a city like Mumbai and up to or less than INR 15 million for other cities like Ahmedabad, Chennai, Kolkata, Bengaluru, Pune, and Delhi NCR and up to or less than 10 million for the rest of India.
It was no sooner than Nov 6, 2019, when the Finance Ministry of India came out with its announcement on establishing a fund worth 250 billion that would fall under Category-II Alternative Investment Funds (AIF), the chief sponsors being State Bank of India and Life Insurance Corporation. It was told that the influx of funds from both these organizations would easily revive any delayed or stalled projects.
Additionally, it would also address the plea of homebuyers whose capital is being stuck as a result of the advance payment made. The announcement ushered in a much-awaited relief for homebuyers at large, especially the middle class who were hit the worst.
Although the government has laid restrictions on funding affordable and middle-income categories currently, market pundits opine that the AIF funds shall boost the growth of the sector by all means. As the industry is set to witness benefits for indirect collaterals, it will include all those projects that cater to the demand for luxury housing. The funding is also open to being availed by other housing projects which are currently underway and reeling under the pressure of corporate insolvency before the National Company Law Tribunal (NCLT). The resolution for such projects is yet to witness a plan formulated by the government and is subject to the approval by the creditor’s committee. It’s only a matter of time before such a decision comes through towards an official announcement.
Through the Alternative Investment Funds (AIF), the union government has plans to establish a Special Window. Out of the total 250 billion, the government will attempt an initial contribution of INR100 billion. Additionally, LIC and SBI will release another INR 150 billion, which will be managed wholly by SBI Cap. The funds this allocated will be widely invested across one and all middle income and affordable projects, which are deemed as having positive net worth and thus revive all such stalled projects right across the country.
However, such a step is looked at as being the last resort to help bail all distressed homebuyers. If it’s being implemented in the very same, it’s been envisioned. It will definitely boost the entire Indian economy, with the real estate market being the most significant multiplier to leave an impact. In essence, it will benefit other relying sectors as well.
The AIF fund will be solely dedicated to ensuring completion of all housing projects that have been brought to a stall. Through such a mechanism, it’s an effort by the government to foresee that any real estate developer, upon availing monetary support from the government side, will be able to bring back stalled projects back in swing and proceed towards fast completion. The buyers will also be hugely relieved as it’s been a long time waiting to get possession of their dream home finally.