Government mulls more financing options like SWAMIH, to support stalled housing projects

The centre is also considering classifying the real estate sector as a different asset class to give it a further boost, said housing minister Hardeep Singh Puri

The government is planning to ask other financial institutes to open up financing avenues on the lines of the real estate-specific stress fund (SWAMIH Fund), to provide priority debt financing for the completion of stalled housing projects, housing minister Hardeep Singh Puri said, on November 27, 2020.

Addressing the virtual NAREDCO-APREA’s three-day ‘Real Estate and Infrastructure Investors’ Summit (REIIS) – 2020’, the minister also said that the Housing Ministry will consider classifying the real estate sector as a separate asset class, to give it a further boost.

“There was a proposal that the real estate needed a different asset class. Please send a note and we will push this forward,” the minister told the attendees, which included some of the top real estate developers in the country and representatives from various industry bodies.

Puri also said that he would interact with his counterpart in the Finance Ministry to further rationalise circle rates and explore the possibility of enhancing the FSI (floor space index) limits, to infuse more housing inventory in the market.

Floor area ratio, also known as floor space index (FSI), is the ratio of the plot size on which the construction can happen and the total permissible coverage area. So, if a city allows an FAR of 2 in a particular area, you can build a coverage area of 2,000 sq ft on a plot of 1,000 sq ft.

The minister also hinted that the centre would encourage other states to reduce stamp duty for boosting housing sales, at a time when demand has hit a record low due to the Coronavirus-induced economic depression.

Addressing the concerns of developers that the pending environment clearances in Mumbai were delaying the completion of projects, the minister urged the Maharashtra government to form a committee, to resolve the issue. He also suggested that developers offload inventory in real time, for fast-track growth.

Data available with show that developers in the Mumbai Metropolitan Region (MMR) are currently sitting on an unsold housing stock consisting of 2,72,248 units. At the current sales velocity, it will take 52 months to clear this unsold stock.

See also: Real Insight (Residential) – July-September 2020


Government approves Rs 4,197 crores for completion of over 25,000 units under SWAMIH fund

In a tweet on October, 8, 2020, the finance minister said this fund will lead to the completion of 25,048 housing units

October 9, 2020: With the government extending monetary support to as many as 33 housing projects through its alternative investment fund, over 25,000 stuck housing units are likely to see completion soon. According to finance minister Nirmala Sitharaman, an investment of Rs 4,197 crores has been given final approval under the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund. In a tweet on October 8, 2020, the FM said this fund will lead to the completion of 25,048 housing units.

“SWAMIH is working at a fast pace, to provide relief to home owners … overall, 123 projects have been now sanctioned, including final approval to 33 projects with an investment of Rs 12,079 crores that will target to provide relief to 81,308 home owners (sic),” Sitharaman tweeted.

Through a series of tweets, the FM’s office conveyed that sanctions under the fund have picked up pace, despite the ongoing restrained construction activities due to the Coronavirus pandemic.

Established to help RERA-registered stuck projects in India’s major housing markets, the fund was set up in November 2019, after receiving an approval from the union cabinet. The monetary support from the fund would result in the completion of over 60,000 units across prime residential markets, including the Mumbai Metropolitan Region, Pune, the National Capital Region, Bengaluru and Chennai. Pending housing projects in several smaller cities of UP, Rajasthan, Haryana, Maharashtra and Chandigarh, will also be provided liquidity under the SWAMIH fund.

According to SBICAP Ventures, the agency responsible for operating the government-led fund, there are about 4.58 lakh stuck housing units across 1,509 stalled projects that need a monetary assistance of Rs 55,000 crores, to see completion across these markets. The government-based alternative investment fund, however, will enable the completion of 60,000 homes. The Rs 25,000-crore fund (plan was to raise that much money) raised only Rs 10,530 crores from 14 investors till December 2019. This includes the contribution from the centre, as well as the investors.

For the projects to get liquidity under the fund, it has to meet several criteria. To receive funds, a RERA-registered project should be from the affordable housing/mid-income category. Apart from that, it should also be net-worth positive.


Government’s stress fund for stalled housing projects: FAQs

We look at the terms and conditions of the government’s Rs 25,000-crore alternative investment fund for stalled housing projects and answer some of the commonly asked questions pertaining to it, to help hassled home buyers to ascertain if their projects qualify for the funding

At a time when the centre had cleared investments of over Rs 540 crores in some stuck residential projects, as part of its Rs 25,000-crore stress fund, global consultancy firm Ernst & Young has recommended that the amount be doubled to Rs 50,000 crores, to help  developers complete stalled affordable housing projects.

The observation by the consultancy firm comes in the backdrop of the Coronavirus crisis, which has battered the economy and the real estate sector. “Cash flow planning and structuring of debt obligations are critical to tide over the current situation. This will require drawing out a crisis management plan and stress testing on cash position. It will also require close monitoring of projects, immediate discussions with lenders on post-moratorium options and exploration of rescue/revival capital for stressed projects,” EY India partner and national leader – real estate, Gaurav Karnik said.

Extending a lifeline to stalled housing projects in the country, the government has in November 2019 announced the setting up of a Rs 25,000-crore alternative investment fund (AIF), in a bid to re-establish normalcy in the real estate and allied sectors. The fund is likely to help over 4.58 lakh units across 1,509 projects reach completion, once allocation starts.

FAQs about the stress fund 

Q: What is the eligibility criterion, for projects to get money under the AIF?

A: For a project to receive money from the AIF, it has to meet several conditions, including monetary limits and scale of delay.

Projects that are RERA-registered: First of all, the project must be registered with the state real estate regulatory authority.

Projects meant for middle and low-income groups: The window is meant only for middle and low-budget homes. For that purpose, the per unit price limit has been kept at up to Rs 2 crores in the Mumbai market, up to Rs 1.5 crores in the National Capital Region, Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad and up to Rs 1 crore in the remaining parts of the country. For the same purpose, the carpet area per unit has been restricted at 200 sq metres.

Projects that are net-worth positive: The project must be net-worth positive. This means the completion cost and outstanding liabilities of these projects should not exceed the worth of the receivables and the unsold inventory in these projects. Projects that are stuck in the National Company Law Tribunal over solvency issues or have been declared non-performing assets, can also seek funds, if they happen to be net-worth positive.

Projects with no litigation: Projects that are caught in litigation in the high court or apex court, however, will not be considered under the AIF.

Projects close to completion: The government memorandum also mentions that for a project to get funds, it should be ‘very close’ to completion. It also specifies that liquidity will be offered, only to those projects where the delay is caused by scarcity of money.


Q: How much funding can a single project get?

A: This limit has been capped at Rs 400 crores.


Q: How much time would be allotted for completion of a project, once the fund is distributed?

A: The answer to that is, ‘at the earliest’. To make that happen, the fund managing agency will be involved at every step, from reviewing the project to deciding if the current builder needs replacement, for the sake of completing the project.


Q: Who will manage the AIF?

A: SBI Caps has been selected to manage the fund.


Q: Which cities will benefit the most from the fund?

A: The Mumbai region could derive the maximum benefit from the fund, followed by the NCR market. According to an analysis that includes 10 prime residential markets of the country, as many as 1,665 RERA-registered housing projects are delayed by over five years across India and are likely to see completion only after 2020. Of these, 880 projects, constituting over two lakh units, are concentrated in the MMR market. On the other hand, a total of 125 projects are delayed across Noida, Greater Noida and Gurugram markets, consisting of over one lakh housing units.


Q: What will be the role of home buyers in the process?

A: After a project is selected for funding, buyers will have to contact their lenders in order to check if their current loan agreement would change. Other than that, they would need to continue paying their EMIs, according to the existing arrangement.


Q: What will happen to projects, where the builder is alleged to have committed fraud?

A: Projects involved in fraud or diversion, will not be considered by the fund. This means builders, such as Amrapali, HDIL, Unitech and 3C Company, may not get money from the AIF.


Q: Can the size of the fund grow in future?

A: Yes. The government expects the size of the fund to grow bigger, with more sovereign and pension funds coming forward to make contributions. Currently, LIC and SBI have pledged Rs 15,000 crores for the AIF, while the centre is contributing the reaming Rs 10,000 crores.


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