After government rolls out the AIF (Alternative Investment Fund) which is a revival scheme for real estate sector is beneficial or a mess?
The scheme is launched on 6th Nov 2019 by finance minister Smt. Nirmala Sitharaman with an objective to revive real estate sector has setup a fund named alternative investment fund (AIF). In the past we have seen banks not willing to fund real estate projects due to their heavy NPAs and precautionary approach, here government steps in wherein they are trying to induce funding in stucked real estate projects by accepting application of even NPAs and NCLT cases.
The clear intention here is to give benefit to home buyers as their homes will now be completed and handover to them but some conditions like returns, financial benefits etc.
Problem here with real estate are not only funding, there are more issues which they are facing like land acquisition, project clearance, excess supply than demand, high cost and prices but the projects mainly are suffering because of financing to complete and handover to buyers.
Present Real Estate Scenario
Suppose a real estate project has 400 flats with 200 pre-booking but stuck into the middle because of financial reasons as there new flats are not selling, now bank are not getting there payment from developer and home buyers as they have also stopped paying installments, so the whole project becomes a NPA for bank and bank are now not ready to restructure or provide additional loans.
Scenario after Real Estate AIF
Now as the project was near completion, AIF comes into play. It approves loan and provides the loan to real estate developer which is NPA and open a Escrow account from which all the expenses of development will be routed through. Now the project will get complete in 1-1 ½ Year and 200 home buyers will get their homes ready. They will start paying there remaining installments and as the project has become ready to move in, the other buyer will also come forward and remaining 200 flats will also get liquidate in a short span of time in an ideal situation and developer will also dispose his balance borrowings.
Additional points to note about Real Estate AIF:
- The fund will be managed by SBI Capital ventures limited.
- Government will infuse Rs. 10,000 Cr and SBI & LIC of India will infuse further Rs. 15,000 Cr making it a Rs. 25000 Cr fund for Real Estate companies.
- It assumes to help nearly 1600 stalled housing projects in country as NPA and NCLT will not be able to stall projects.
- It will leads to generation of employment, revival of demand of cement, iron, steel, electronics, light, fans, tiles, sanitary etc.
- Win win situation for buyers and developers.
- Nearly completion projects to be benefited most which are going to be complete in 1-1.5 years.
- It will take 3-5 months for disbursement of funds.
- Around 60 K units will be benefited immediately and approx. 4.58 lakh housing units will be benefited over time.
Special points to be noted
- Net worth of project should be positive.
- Project requiring least fund will be given priority and max funding to a single project is Rs. 400 Cr.
- Benefit is likely to be seen in 4-6 months.
- Investment manager along with developer or project Management Company to ensure funds to be used for completion of project only.
Negatives of Real Estate AIF :
- Large supply may impact prices of real estate to come down.
- Problem is quite bigger as nearly 13 lakh houses worth approx Rs. 9.38 lakh crore are lying unsold in bracket of 1-2 Cr.
- Benefits can only start to be seen in Q4.
Key Takeaways :
- Benefit to affordable & middle income category.
- Project must be RERA registered
- Priority to projects near completion.
- Net worth must be positive.
- Early completion and possession.
Expected companies to be benefitted after 5-6 months from Real Estate AIF
- Godrej Properties
- Oberoi realty
- Asian paints
- Shree Cements
- Ramco Cements
- L & T Fiannce
- Yes Bank
- Indusind bank