In a long-awaited booster package for the realty sector, the government on Wednesday announced the setting up of a Rs 25,000 crore alternative investment fund (AIF), aimed at providing relief to developers with unfinished projects to ensure delivery of homes to buyers.
Analysts believe the move will be strongly welcomed by the market.
Announcing the package, Finance Minister Nirmala Sitharaman said while the government has earmarked Rs 10,000 crore towards the fund, Life Insurance Corporation and State Bank of India would also infuse money.
Many sovereign funds have shown interest in the AIF, which will be managed by SBICAP Ventures, Sitharaman said at a media briefing after a Cabinet meeting.
Dalal Street experts said the real estate sector, which has remained neglected for long, may finally come out of stress.
“It is a fantastic move and is positive for the sector. We should see realty sector coming out of stress eventually. It will solve problem of NPAs in finance companies on one end, and act as a catalyst for de-inventorisation on the other,” said Deven Choksey, Group Managing Director at KR Choksey Investment Managers.
As per government’s estimates around 4.58 lakh housing units are stuck in India with over 1,600 stalled realty projects.
Ajay Bodke, CEO of PMS Prabhudas Lilladher, believes the fund has the potential to act as a force multiplier to impart the necessary push to revive economic activity in the nerve centers of the economy.
“The government’s initiative to kick start the moribund residential real estate sector through formation of an AIF Category II fund and a promise of topup subsequently both from the contributors as well as others, including sovereign wealth funds, will be strongly welcomed by the market,” he said.
Bodke said by including RERA-registered net worth-positive projects that are substantially completed, the government has ringfenced the risks to a large extent.
Other market experts also echoed similar views.
Sameer Kalra, Founder of Target Investing, said: “It will provide a relief to the developer financiers as the project completion gets done the repayment of the dues against the project can be made. And would reduce inventory that has been adding on and has put pressure on the price of the units along with denting the cash flow of the developer.”
In a late evening decision on Wednesday, the Cabinet also approved the establishment of a ‘Special Window’ to provide priority debt financing for completion of stalled housing projects in the affordable and middle-income housing sector.
The government expects these decisions to help relieve financial stress faced by large number of middle-class homebuyers.
This is also expected to release large amount of funds stuck in these projects for productive use in the economy.