New Delhi: Union Finance Minister Nirmala Sitharaman on Wednesday said the government has approved setting up of a Rs 25,000 crore bailout fund to finance 1,600 stalled housing projects as it looks to boost the economy by kickstarting incomplete projects.
The decision was approved by the Union Cabinet at a meeting chaired by Prime Minister Narendra Modi.
The minister said the government will establish a 'special window' to provide priority debt financing for completion of stalled housing projects in the affordable and middle-income housing sector.
Sitharaman said 1,600 stalled housing projects with 4.58 lakh homes will benefit from the alternate funding mechanism, adding that the Reserve Bank of India (RBI) and its Governor discussed a viable way to reach out to homebuyers.
"An AIF (asset alternative fund ) will be created. The government will put in Rs 10,000 crore and others, such as SBI and LIC, will create funds of Rs 25,000 crore in all," she told a press briefing after a meeting of the Union Cabinet.
"This investment will be used to complete housing units worth less than Rs 2 crore in Mumbai, Rs 1.5 crore in Delhi-NCR, Chennai, other metros, and Rs 1 crore in other cities," she added.
The move is aimed at generating employment as well as reviving demand of cement, iron and steel industries. It is also aimed at relieving stress in the major sectors of the economy.
The fund size would increase as sovereign and pension fund are expected to participate in this AIF. The AIF can be utilised even by the projects which have been declared non-performing assets or are facing insolvency proceedings, Sitharaman added.
The AIF, which was first announced by Sitharaman on September 14, will act as a 'special window' to provide loans to over 1,600 incomplete affordable and middle-lower income housing projects. Sitharaman said the scheme is a modified version of the September 14 plan. The key change is allowing the AIF to fund projects that lenders may have declared as non-performing assets (NPAs) or which have been dragged to the NCLT for insolvency proceedings.
She, however, said only RERA-registered projects with positive networth will be provided funds.
The AIF funds will be released in stages through an escrow account and will be contingent upon completion of the approved phase, she said, adding the size of the fund may be increased with the participation of sovereign and pension funds. The fund will be managed by SBI Caps.
Sitharaman said the government is seized of the problem faced by homebuyers who are forced to pay EMIs on loans taken for buying homes but have not yet got possession and continue to shell out both loan installments and rent.
On Tuesday, Sitharaman had said that the government and the Reserve Bank of India (RBI) are in the process of resolving the issues faced by the real estate sector, admitting that the issues facing the real estate sector have not been addressed fully which is a cause of concern since it has a spillover effect on many sectors.
Meanwhile, real estate developers' association Confederation of Real Estate Developers Association of India (CREDAI) welcomed the move, saying it will solve the long-pending problem of homebuyers.
"It's a very welcome change from the initial announcement (of September 14). Now the only criteria for eligibility is networth positive projects... this will ensure that the fund is actually deployed to complete incomplete projects which are even NPA or also in NCLT," CREDAI Chairman Jaxay Shah said.
"We are certain that a majority of stuck homebuyers will benefit from the announcement of a Rs 25,000 crore stress fund which is going to be increased in value if needed," he said, adding that quick deployment of money and efficient decision-making for qualification of projects will solve the long pending problems of homebuyers.
Since August, the government has been taking various steps to revive the market and consumption demand, the minister said. Recently, the government cut corporate tax rate to 22 per cent, which involved an outgo of Rs 1.45 lakh crore.
Real estate developers are finding it difficult to raise funds after the default by the IL&FS group that triggered a liquidity crisis in the economy. This was aggravated by the economic slowdown, which at one hand caused huge inventory pile-up due to lack of demand and also brought ongoing projects to a standstill due to lack of funds.
(With inputs from PTI)
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