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Renaissance of housing: Government's trial and error scheme?
Moneycontrol.com  |  November 18, 2019

Gaurav Garg

Cabinet approval for setting up a Rs 25,000 crore Alternative Investment Fund (AIF) can be considered the next big step forward, after Finance Minister Nirmala Sitharaman’s proposal announced in September 2019, to provide last-mile funding for stressed housing projects.

 

As per the plan, the government will put Rs 10,000 crore in the fund, while State Bank of India (SBI) and Life Insurance Corporation (LIC) will have to bring in another Rs 15,000 crore together.

 

The entire project will be handled by SBICAP, also will also cover non-performing projects and those which are under the insolvency process. All in all, officials say, through 1,600 abandoned projects, the fund would reach 458,000 unfinished units.

 

The government appears to have prepared well by setting up an AIF to support the sinking sector, rather than taking direct responsibility for completing these stressed projects.

 

The new investment vehicle may enjoy greater regulatory flexibility. The policy seems to be benefiting government and society in many ways.

 

This may end up as a big relief for those who are stuck in these stalled projects and are forced to pay both EMI and rent. This can also raise liquidity and gear up the operations in the real estate sector, where non-availability of funds is a major issue. Other sectors linked with real estate such as cement and steel, may also experience a good outcome out of this.

 

On the other hand, SBICAP holds big-time responsibility to allocate and deploy the fund. It must also ensure that the fund is not stuck in legal hurdles when operating with those undergoing insolvency proceedings at the National Company Law Tribunal (NCLT). If these funds end up failing to get good returns it will be marked as another setback for the real estate sector.

 

On top of everything, the housing sector is facing multiple issues. Apart from a liquidity crunch, housing sales reported 25 percent lower number for the quarter ending on September 2019. This has led to an increase in inventory, thus maintenance cost is adding up the burden on suppliers’ pockets.

 

Projects like this (AIF) can benefit the drowning market, but the effect would rely to a greater extent on the management of the fund. On a broader scale, the recovery of the real estate sector will depend on the better management of the funds and schemes introduced by the government.

 

(The author is Head of Research at CapitalVia Global Research - Investment Advisor.)