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Industry experts on government’s Rs 250 bn AIF boost

Industry experts on government’s Rs 250 bn AIF boost

01 Nov 2019 Long Read

The government announced its decision to set up the Rs 250 billion alternative investment fund (AIF) recently, with the central aim being – relief for developers as well as to give the sector a boost. This is yet again, in tune with India’s ambitious USD 5 trillion economy goal. The fund will provide aid to around 1,600 stalled real estate projects that can now be completed. 

Reportedly, while only projects with a positive net-worth that have been registered under RERA will be given funding, the number of properties in India to benefit will be around 0.5 million. The government has effectively barred the chances of risk with the careful selection of projects

The Centre has put aside Rs 100 billion for the package while the rest of the amount will be covered by Life Insurance Corporation and State Bank of India. Following the announcement, industry experts hailed the decision as one that would finally help the realty sector come out of stress. It is also expected to act as a force multiplier which will promote economic growth and development.

CW records comments made by industry experts on the government’s announcement that is set to fuel the real estate sector: 

Rajat Bahl, Chief Analytical Officer & Head - Financial Institutions, Brickwork Ratings said, “The Real Estate sector plays a key role in deciding the consumer sentiments and drives the confidence to spend. The growth in the real estate sector spurs performance in many other sectors including construction, cement, and steel, thereby generating employment in those sectors. The Government of India’s announcement of establishing an Alternate Investment Fund (AIF) worth INR 250 billion aimed at priority debt financing for the completion of stalled housing projects that are in the affordable and middle-income housing sector, will go a long way in providing the much-needed relief to the developers having funding requirements. It will also provide relief to homebuyers having investments in these projects. However, on a broader level, this may not completely address the urgent need of the sector that is plagued by huge unsold inventories.

The need of the hour is to stimulate demand among homebuyers, which itself would then provide cash in the hands of developers to finish off other stalled projects. In fact, completion of these projects will only add to the already huge pile of unsold apartments to the tune of 0.45 million units (Source: Knight Frank) though this problem is lesser in the affordable housing segment. The answer may lie in taking a leaf out of the negative interest rate mortgages being handed out by banks in Europe. We should look at offering home loans on completed projects or projects getting completed in the next six months at discounted rates of 2-4 per cent. The subvention will need to be provided by the lenders in these projects and the government. The moral hazard of bailing out the developers can be avoided by linking the subvention to price cuts being offered by developers to get their skin in this scheme.”

Koshy Varghese, MD, Value Designbuild said, “The fact that the Union Cabinet is trying to reach out to the ailing realty sector is heartening. However firstly, the government has limited resources to stretch to realty. Secondly, if we take into consideration the value of loans and bad debts, the amount approved by the Union Cabinet is miniscule. Taking into account that 90 per cent of the total debt is currently owed by only 10 per cent of the developers, mainly the larger ones the question remains as to how the government will ensure that the intended financial boost trickles down smaller developers? Additionally there is no stipulated deadline as to when this fund will be allocated. It would have been a much better option for the Finance Minister to provide incentives to the public to purchase housing units. Furthermore, the government must seriously consider giving the real estate sector the much needed industry status.”

M Murali, Chairman and Managing Director, Shriram Properties said, “The alternative investment fund (AIF) announced by finance minister, as a measure to boost the realty sector will definitely help to bring back the homebuyers’ confidence.  The infusion of funds for affordable and mid segment projects will positively impact the normal home buyers. I am certain that this coupled with other measures such as the support extended to NBFCs will serve as a stimulus to help the economy get back on track and aid an additional 1.5 to 2 per cent growth. It is great to see that projects declared NPA or those not declared liquidation-worthy by NCLT will also benefit from this initiative. I feel that AIF will immediately benefit around 50,000 units. If it is implemented well, I hope many sovereign funds will also join the AIF in future, apart from SBI and LIC“

Rohit Poddar, Managing Director, Poddar Housing and Development and Joint Secretary, NAREDCO Maharashtra said, “This stimulus package has been announced majorly for the NPA projects under RERA. The funds will bankroll the stalled projects in the affordable and mid-income housing segment and keep the needle moving in the micro markets. It will also revive the demand for construction materials and assuage the stress in other major sectors in the economy."

Chintan Patel, Partner and Leader - Building, Construction and Real Estate, KPMG in India said, “The government has taken a step in the right direction to provide support to homebuyers and developers. It is good to see that projects currently NPA or under NCLT will also benefit from this. While the Honourable Finance Minister has detailed a number of components of the plan, it would be interesting to understand some of the specifics in terms of tenure of investment, cost of funds to the developer, security package, etc.”

Sharad Mittal, CEO & Head, Motilal Oswal Real Estate Funds said, “It's a positive move for the liquidity starved real estate sector. Rs 250 billion will be good amount to address the chronic situations. Though one need to see the modalities on implementation, time is of essence in delayed projects"

Parth Mehta, Managing Director, Paradigm Realty said, “The recent announcement by Finance Minister to let the AIF with corpus of Rs 250 billion to even look at NPA and NCLT projects a modification from earlier non-NPA and non-NCLT will help lot of stuck projects which are at a good construction stage but have got stuck due to lack of project finance or adequate sales helping the buyers of Rs 10 million & less ticket sizes which is typically a first home for salaried families in metro.”

Dr Niranjan Hiranandani, President (National), NAREDCO and MD, Hiranandani Group, said “The vexed problem of delayed and stalled real estate projects appears to have found a solution, with the Hon’ble Finance Minister announcing Cabinet Approval of the scheme to provide ‘last mile funding’ for such projects, which she had proposed earlier. The funds will be used to provide priority debt financing for the completion of stalled housing projects in the Affordable and Middle-Income Housing sector, providing relief to developers with unfinished projects as also ensuring delivery of homes to buyers.” 

Manju Yagnik, Vice Chairperson Nahar Group and Vice President NAREDCO, Maharashtra said, “Cabinet's approval for funding of stalled Affordable and Middle-Income housing projects will enable home-buyers to get delivery of homes locked in stalled housing projects. The total funds committed by the Government would be upto Rs 100 billion which will be set up as Category-II Alternate Investment (AIFs) entrusted to professional Investment Managers. This will, in due course, help relieve the financial stress faced by a large number of middle class home buyers who have invested their hard earned money. This will also restore trust between buyers and developers and boost the sentiments of the housing sector as Investment Manager will be responsible to ensure that the funds are used only for construction through appropriate safeguards mandated by RERA and also through deployment of external project monitoring agencies. 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."

Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “The inclusion of developments under NPAs and NCLT into the gamut of eligible projects, albeit these are net positive projects, into the Special Window Funding is a welcomed decision. The extension of this benefit to mid income beyond the affordable housing segment is a critical step forward. We welcome these changes and feel that this will help create greater momentum in stock movement. There are many projects which are near completion but have not been able to garner last mile funds will benefit from this move. This step will definitely create greater confidence and credibility and may, in due course, encourage private segments to extend their support in last mile funding, helping the beleaguered sector to go over this period of slowdown”

Bijay Agarwal, Managing Director, Salarpuria Sattva Group said, “This is a welcoming move by the cabinet and the fund will help provide relief to more than 4.5 lakh home buyers. This step proposes to bail out many housing projects and revive hope for the home buyers. The extension of fund to mid-income projects is reassuring step forward. Faster implementation of the funds will only enhance the sector further. Some reforms to stamp duty or GST are the boosters that majority of the developers are anticipating from the government.”

                                                                 

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