The government’s last-mile financing support for stalled housing projects through a Rs 12,500-crore alternative investment fund (AIF) has gathered momentum and is expected to unlock around Rs 26,000 crore of capital stuck in these projects over the next one year, said the head of the company managing the fund.
The special window, announced by the finance minister in November, has so far cleared projects with a capital commitment of more than Rs 540 crore. These would provide relief to more than 1,800 homebuyers who had booked housing units in these projects that were stuck due to lack of financing support.
“On the basis of the current deal flow, we expect to provide relief to around 50,000 units which will house nearly 240,000 people and unlock about Rs 26,000 crore of capital in the next one year,” Arun Mehta, the managing director of SBI Capital Markets and the chairman of SBICAP Ventures, told ET. SBICAP Ventures manages the AIF.
The AIF is taking multiple steps so that it has complete control of the disbursement and the end use of the funds. This is to ensure that there is no diversion of funds. The fund appoints a project management company and quantity surveyors to keep a track of site-level expenses. All expenses will be directly funded through the real estate company’s account with an emphasis on physical and visible progress in construction milestones.
“Responding to the market feedback, the fund has started sharing some of the project cash flows with the existing lenders in the project. While the capital provided by the fund shall still be used only for project construction, the fund will allocate some percentage of the cash flow from sales and receivables to the existing lenders on a case-to-case basis, depending upon the cushion available in the cash flows,” Mehta said.
The balance portion of the sales and receivables will be pumped back into project construction till the work is completed, and the AIF will start getting returns only after the completion of the projects. Thus, even during the construction period, there will be some cash flow to existing lenders that can be used to reduce provisions or service debt as applicable.
Currently, there are 4.58 lakh stalled housing units in 1,509 stuck residential projects across the country. It is estimated that Rs 55,000 crore would be required to complete these projects, which would unlock Rs 3.3 lakh crore of inventory.
According to Mehta, the AIF will aim to provide sufficient capital to complete projects with minimal dependence on market forces such as inventory sales and collection from sold receivables. Also, the investment will be structured such that scheduled repayments commence only after the completion of projects. This will ensure that there is adequate buffer to fast track project completion, delivery and improve the overall sale sentiment.
