Following the finance minister’s announcement of setting up a Rs.250 billion fund – in the nature of Category-II Alternative Investment Funds – real-estate developers will be able to complete construction and revive stalled projects, say Aradhana Bhansali and Manasi Padwalkar.The acts of real-estate developers have had multiple effects not only on homebuyers, depriving them of their legitimate rights to enjoy and occupy their respective flats in a time-bound manner, but also on the entities carrying out the projects crashing down, leading to a total standstill of housing projects.For decades, the mentality of the developers has been feudalistic,with them asking homebuyers to sign unilateral agreements with harsh payments terms such that even one day’s delay in paying an instalment invited an obnoxious interest rate and all such monies were paid by genuine homebuyers endlessly waiting to get their dream homes.Cases like Nikhil Mehta v. AMR Infrastructure, Jaypee Infratech (Chitra Sharma and others v. Union of India and others), Amrapali Group (Bikram Chatterjee v. Union of India) and Pioneer Urban Land and Infrastructure and others v. Union of India have moved the heart of the courts where the plight of several 1,000 homebuyers were discussed on account of stalled housing projects. Even developers who are genuine and keen to complete projects are unable to do so on account of the general economy being in a gloom. It has become rather difficult for such developers to avail help from financial institutions and NBFCs as they themselves are facing flak from the Reserve Bank of India (RBI) on account of their lapses and cases like IL&FS and DHFL, further making the situation topsy-turvy in terms of completion of housing projects.On November 6, 2019, the finance minister made an announcement on the establishment of a `250 billion fund, in the nature of Category-II Alternative Investment Funds (AIF). With the government, Life Insurance Corporation (LIC) and State Bank of India (SBI) acting as the main sponsors, the influx of funds would revive delayed projects that have been stalled and address the pleas of homebuyers with capital stuck in housing units. This announcement has given a much-awaited reprieve to homebuyers, particularly those from the lower and middle-income categories who were worst hit.‘Special window’The government will set up a Special Window, through an AIF. Out of the Rs.250 billion fund, the government will make an initial contribution of Rs.100 billion, while the SBI and LIC will provide an additional Rs.150 billion for the fund, which is proposed to be managed by SBI Cap. These funds will be invested in affordable and middle-income projects that are net-worth positive to revive stalled housing projects across the nation. This step has emerged as a last resort to bail out distressed homebuyers. If implemented in the right manner, it will also boost the Indian economy as the real-estate sector has the largest multiplier impact on the economy, which also benefits other allied sectors dependent on it.Projects aided from the special windowThe housing projects that can avail the benefits of the fund will have to come under certain criteria set up by the government, which are as follows:Projects that are registered under the Real Estate (Regulation and Regulation) Act (RERA).Projects stalled for lack of adequate funds.Project that are net-worth positive, ie, where the value of receivables plus the value of the unsold inventory are greater than the completion cost and outstanding liabilities of the project.Projects that fall in the affordable or middle-income category; ie, which do not exceed a RERA carpet area of 200 sq m and where the units cost up to or less than Rs.20 million in the Mumbai region; up to or less than Rs.15 million in NCR, Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad; and up to or less than Rs.10 million in the rest of India.Although the government has restricted the funding to the affordable or middle-income category at present, experts in the construction industry believe that, with this boost, the real-estate sector in totality will witness an indirect collateral benefit, including the projects that cater to luxury housing.This funding by the government can also be availed by housing projects that are undergoing the corporate insolvency resolution process before the National Company Law Tribunal (NCLT), where the resolution plan for such a process has either not been approved or rejected by the committee of creditors. In fact, we understand that the mega housing projects being constructed by Jaypee and Amrapali Group, at this stage, though not under the bail out package of the government, have petitioned to the government for a bail out under this scheme through the Special Window. One will have to wait and watch for this inclusion in the scheme.The mechanismThe AIF fund will have an investment manager who will select the housing project for funding after carrying out due diligence, where preference will be given to housing projects that are stalled for lack of adequate funds though net-worth positive (including NPAs and projects undergoing NCLT proceedings) and projects close to completion. After selection of the project, the investment manager will make a detailed investment review with the help of external agencies. This mechanism will be part of the contractual arrangement with the developers as part of funding and approval of the fund investment.In conclusionWith this new development, the AIF fund will be dedicated to complete stalled housing projects wherein the criteria laid down by the government will be stringently followed. Through this mechanism, we foresee that the real-estate developers, by availing the monetary support provided by the government, will be able to revive their stalled projects and complete construction and the homebuyers who have been long awaiting their dream homes will finally get possession. A marginal drop in applications filed against real-estate developers before the Real Estate Regulatory Authority and NCLT can be expected, which will eventually relieve the authorities who are already burdened with cases filed by the homebuyers against real-estate developers.About the authors: Aradhana Bhansali, Partner, Rajani Associates, carries with her an experience of more than 15 years and handles mostly the real estate and trusts-related practice of the firm.Manasi Padwalkar, Associate, Rajani Associates, is part of the firm’s Real Estate, Succession and Trust Team.To share your views, write in at feedback@ConstructionWorld.in