AIF fund a positive step for real estate sector

Slashing corporate tax, infusing INR 10,000 crore by the government, and repo rate reduction of 135 bps by RBI are real boosters for the sector

The recent Rs 25,000 crore funds infusion in the real estate sector to revive stalled projects is a welcome move for realtors and home buyers alike. The fund will see an infusion of Rs 10,000 crore from the government and the rest from public sector entities, State Bank of India (SBI) and Life Insurance Corporation of India (LIC). This infusion will be managed by SBICAP Ventures with participation from others. The fund will be open to other sovereign and pension funds to add to the corpus.

For over a decade now, India’s real estate sector has been facing immense pressure due to the unfulfilled need for patient capital to complete stalled projects. According to government estimates, there are nearly 4,58,000 housing units and over 1,600 projects in India, which were stalled. The move also ensures that the aspect of the National Company Law Tribunal (NCLT) or the Non-Performing Asset (NPA) does not create a stumbling block to prevent stalled and delayed projects from approaching the fund, going forward. Therefore, this funding comes as a sigh of relief and creates a win-win for homebuyers and real estate developers.

The projects which will gain from this funding are net worth positive projects, affordable and middle-income housing, ongoing projects registered with the Real Estate (Regulation and Development) Act, 2016, and projects classified as NPAs.

Funds sanctioned for the stalled project will get transferred to an escrow account and money will be released as per the assessment and progress of construction.

Houses in demand

The earlier requirement of a project not being categorized as NPA or not admitted to the NCLT has now been removed. This will help projects which are stalled in the last phase of completion. It will give the much-needed fillip to real estate, especially affordable housing, which was facing a crunch in funds. The benefits will include the availability of housing units worth Rs 2 crore per house in Mumbai, Rs 1.5 crore in Delhi NCR, Ahmedabad, Pune, other metros, and Rs 1 crore in other parts of the country.

How will the sector grow?

The sector has seen subdued investor confidence in the stock market in the recent past. This funding is a sure shot move to boost sector confidence in generating demand for housing and increasing employment. Also, completion and delivery of affordable and middle-income housing projects are expected to kick in a virtuous cycle, boosting employment, demand for housing and allied sectors such as iron, cement, and steel industries, benefiting the overall domestic economy.

The extension of this benefit to mid-income beyond the affordable housing segment is a critical step forward. Though one needs to see the modalities on implementation, time will be of the essence in delayed projects.

Authored by (at the time of writing): 

Aryaman Tandon, Leader, Real Estate and Construction Practice 

This post first appeared on money control and has been published with permission. Read the original here.

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