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Nirmala Sitharaman's real estate fund: Everything a home buyer should know

According to FinMin's FAQs, the focus of the Special Window is on mid and affordable segment. "However, alleviating the stress for developers in this segment may have indirect benefits for the entire real estate sector including luxury segment."

ET Online|
Updated: Nov 11, 2019, 07.13 PM IST
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Have a house in a stalled project? Here's all you need to know about Nirmala Sitharaman's realty fund
Have a house in a stalled project? Here's all you need to know about Nirmala Sitharaman's realty fund
Late Wednesday evening Finance Minister, Nirmala Sitharaman came out with some good news for the real estate sector. The cabinet approved a Rs 25,000-crore special window to provide funding to housing projects that are stuck, with the aim of reviving the key sector, providing a boost to the economy and bringing relief to home buyers.

Understandably everybody has a lot of questions about the fund, how it will work, and how various stakeholders (like home buyers) will be impacted. To address some of them, the Ministry of Finance has released a set of FAQs (frequently asked questions) on the same. You can read the FAQs here .

Here are some of the finance ministry's FAQs pertinent to home buyers.

  1. What is role of the Government and the Investment Managers in this Special Window?
    The Government shall act as the sponsor to the proposed fund and shall have the authority and responsibility as specified under SEBI (AIF) Regulations, 2012. Whereas, the investment manager is responsible for fund raising, investments and managing the fund team.
  2. What is size of the fund?
    The total commitment of funds to be infused by the Government in the affordable and middle-income group housing sector through the Special Window would be up to Rs 10,000 crore. The fund is seeking matching contributions from Banks, LIC and others to generate a total corpus of around Rs 25,000 crore.
  3. Who will manage the fund?
    For the first AIF under the Special Window, SBICAP Ventures Limited shall be engaged to be the Investment Manager.
  4. Will projects under NPA and NCLT be considered for the last mile funding?
    Yes. Based on the inputs received from the stakeholders the Government has decided to increase the scope of investments to include NPA as well as NCLT projects. All applications for financing would be reviewed by the investment committee of the fund for approval, after due-diligence and discussions with existing lenders and legal advisors.
  5. Which projects undergoing NCLT proceedings are eligible to be considered for funding under the Special Window?
    Any or all projects undergoing corporate insolvency resolution process before the NCLT can be considered for funding through the Special Window up to the stage where the resolution plan for such insolvency resolution process has not been approved / rejected by the committee of creditors.
  6. Will this fund invest in cases which are pending before the High Courts and the Supreme Court?
    No. The focus of this Special Window will be on the projects that are stalled for lack of construction funding. It shall also look at projects that are NPAs or undergoing NCLT proceedings, that can commence construction immediately after funds are made available.
  7. What will be the criteria for the selection of the projects for funding?
    Funding shall be provided to the projects that meet the following criteria:
    • Stalled for lack of adequate funds
    • Affordable and Middle Income Category
    • Net worth positive projects (including NPAs and projects undergoing NCLT proceedings)
    • RERA registered
    • Priority for projects very close to completion.
  8. What is affordable and mid-income housing project?
    For the purposes of the first fund under the Special Window, Affordable or Mid-Income Housing shall be defined to include any housing projects wherein housing units (to be specified in detail in the fund documents) do not exceed 200 sq. m. RERA carpet area and are priced as below:
    • Up to or less than Rs 2 crore in Mumbai Metropolitan Region
    • Up to or less than Rs 1.5 crore in National Capital Region, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad
    • Up to or less than Rs 1 crore in the rest of India.
  9. What all would be covered under the price caps that are specified for various cities?
    This price does not include any additional charges for social amenities, parking, housing society, brokerage, deposits, registration and stamp duty charges.
  10. What is definition for carpet area?
    Carpet Area shall have the meaning as assigned to it in clause (k) of section 2 of RERA i.e. Carpet Area means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment.
  11. Will this fund also look at villa projects?
    The fund will invest in any project that meets its investment objective of completing housing units with size less than 200 sq. mts. and the city-wise pricing norms subject to a cap of Rs 2 crore.
  12. Which cities will be most taken care of under the funding of stalled housing projects across India? Is there going to a region wise allocation of the fund?
    The Portfolio Investments by the Fund shall be spread across India with no geographical restrictions. There will be caps at project level, developer-level and city level as per standard risk management practice.
  13. What portion of the stalled real estate housing projects fall under the affordable and mid-income segment?
    As per industry estimates, 90% of the stalled projects are under the affordable and mid-income segment.
  14. Will the retail loans of the selected stalled projects be restructured?
    This will be done as per RBI guidelines and Bank Board approved policies.
  15. How will the home-buyers be benefited from the funding?
    Revival of stalled projects will lead to early completion and timely possession of homes for home-buyers who have invested their hard-earned money.
  16. What is the process to monitor if the allocated fund is utilised by the developer on the respective project?
    The Special Window shall provide capital for completion of construction of stalled projects. The Investment Manager along with developer / appointed project management companies shall ensure that the end use of funds is only for the purpose of completing the project. Standard financial controls maintained by RERA will be adopted.
  17. How many projects are expected to be benefited under the scheme?
    As per industry estimates, in the stalled category, there are about 1509 housing projects comprising of approximately 4.58 lakh housing units. Projects meeting the investment eligibility criteria will be financed. The maximum finance for any single project will be INR 400 crore. There will be caps put in place for a single developer and for any single city as well as part of the final detailed scheme.
  18. The funding is only for mid and affordable segment. What about the incomplete projects of luxury segments?
    The focus of the Special Window is on mid and affordable segment. However, alleviating the stress for the developers in this segment may have indirect collateral benefits for the entire real estate sector including luxury segment.
  19. What is the expected timeline for execution of projects once funding is received?
    The objective of the Special Window is to complete the construction of the stalled projects at the earliest. Accordingly, funding would be structured to meet the construction and sales schedule of the relevant projects.
  20. Who will construct the project if the developer is incapable?
    As part of the investment review, the Investment Manager will take a call if there is any need to change the developer for the project.
  21. Will there be any specific guidance issued for the home-buyers?
    Home-buyers are advised to reach out to their respective lending institutions to seek necessary guidance for additional borrowing or revival of their existing home loans within the existing legal and regulatory framework and standard board approved policies of the lending institutions.
  22. What about the projects that won't qualify under the selection criteria?
    Those project will continue to have recourse to existing alternatives for funding, restructuring and resolution.
  23. What if the developer or the previous funding agency/Banks and NBFCs want to serve their own interest over the interest of the home-buyer? Will the fund have any authority to fix this issue?
    The capital provided by the fund would be used only for completion of the stalled projects. This should benefit all the stakeholders in the project.
  24. Who will be responsible for the sales of the unsold inventory/cancelled bookings of the stalled projects?
    Primary responsibility will be of the developer. However, the Investment Manager may also take a call on the necessary actions to be taken on a project to project basis.

Also Read

Real estate fund: What govt needs to do to implement it successfully

SBI to contribute up to 10% of the real estate fund announced by FM: Dinesh Kumar Khara

Motilal Oswal Real Estate funds make Rs 105 crore exit from Pune project

Axis AMC raises Rs 400 crore for maiden real estate fund

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