Govt. declares INR250b booster dose for stalled projects
The Finance Minister (FM), Ms. Nirmala Sitharaman, after consultation with key stakeholders, has announced further measures to revive the ailing real estate sector on 6th Nov’19. This follows the earlier broad outline of measures announced in Sep’19. Key insights from the press conference highlighted below:
* According to the government, ~1,600 housing projects (0.46m housing units) are stalled. In order to aid these stalled projects, the government will set up a Category - II AIF with corpus of INR250b (government will contribute INR100b while LIC, SBI and sovereign funds will contribute the rest).
* SBICAP Ventures Ltd. will be engaged as investment manager for the fund.
* This fund will provide relief to developers that require funding to complete their unfinished projects, and consequently, ensure delivery of homes to buyers.
* RERA registered incomplete projects across India with positive net worth will be funded in stages (subject to milestones being achieved). Even NPA and NCLT projects will be covered.
* The funds will be transferred to an escrow account and it will be ensured that the money is used for completion of projects.
* A threshold has been placed on the per unit cost of housing units for various cities:
* INR20m for Mumbai
* INR15m for Chennai, NCR, Kolkata, Hyderabad and Bengaluru
* INR10m for other cities.
* Our interaction with industry experts and developers suggest that this is a welcome move and should help improve sentiment for the ailing sector. It is estimated that 30-40% of stalled projects will see a likely resolution due to this fund. Additionally, it is estimated that a large number of the stalled projects, which are likely to benefit are located in NCR. However, this relief is unlikely to benefit key listed real estate players directly. Besides, the timeline for setting up this fund and its efficient implementation is critical.
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