For the purposes of funds to be set up, the government shall act as the Sponsor and the total funds committed by the Government would be upto INR 10,000 crore. The funds will be set up as Category-II Alternate Investment (AIFs) Fund registered with SEBI. These funds would be entrusted to professional Investment Managers. For the first AIF under the Special Window, it is proposed that SBICAP Ventures Limited shall be engaged to be the Investment Manager.
The Special Window would provide funds to stalled housing projects enabling them to complete unfinished projects and consequently ensure delivery of homes to a large number of home-buyers.This will, in due course, help relieve the financial stress faced by a large number of middle class home buyers who have invested their hard earned money. This will also restore trust between buyers and developers and boost the sentiments of the housing sector as a whole and release large amount of funds stuck in these projects for productive use in the economy.
The creation of special window for affordable and middle income housing projects would revive the real estate sector and generate considerable employment. Besides, revival of the sector will also lead to demand of Cement, Iron & Steel Industries giving further impetus to generate more employment. This initiative will have a positive effect in releasing stress in other major sectors of the Indian economy as well.
Measures already taken to boost the housing sector
Taking into account the stress in the housing and construction industry, many measures have been undertaken by the Government to boost the housing sector, which are listed below:
- IT deduction on Affordable Housing: Additional deduction up to INR 1,50,000 of interest paid on loans borrowed up to March 31, 2020 for purchase of houses valued up to INR 45,00,000 has been announced
- Repo rate/external benchmark linked loan products: have been launched by Banks
- Pradhan Mantri Awas Yojana: Under PMAY-Urban, 90 lakh houses have been sanctioned so far and 27.16 lakh houses had been completed by the end of September, 2019. Allocation of INR 1.42 lakh crore of central assistance has been provided for PMAY(U) for housing projects with an investment of INR 5.54 lakh crores. Under PMAY (G), out of a cumulative target of 1.5 crores, 84.4 lakh units have been completed. Rest are under construction.
- HFC liquidity support: NHB has made available a liquidity infusion facility of INR 30,000 crore for HFCs as additional liquidity for individual housing loans for affordable housing sector.
- Partial Government guarantee – For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs.1 lakh crores during the current financial year, Government has launched a scheme to provide one-time six months’ partial credit guarantee to Public Sector Banks for first loss of up to 10% of the fair value of assets purchased by a bank from a stressed NBFC or HFC. The scheme will be open for up to six months.
- Interest on House Building Advance (HBA): The interest rate on House Building Advance has been lowered and linked with the 10 Year G Sec Yields to encourage more government servants to buy new houses.
The Hon’ble Finance Minister on September 14, 2019 had announced that a special window for affordable and middle-income housing will be created. This special window will provide last mile funding for housing projects which are stressed.
Subsequently, Inter-ministerial consultations and several stakeholder consultations were held with the housing industry including Housing Finance Companies, Banks, NBFCs, Investors, and Real Estate Developers. Problems being faced by home buyers, developers, lenders, and investors were ascertained that could be addressed through the Special Window.
The Special Window
Based on the feedback received and for addressing the problems faced by lower and middle class home buyers, whose houses may be stuck in NPA or NCLT projects, the Union Cabinet today approved the Special Window with a Government contribution of Rs 10,000 crores. The Special Window will also cover projects that are classified as NPA or where NCLT proceedings have already started, but the project meets the other eligibility criteria.
The Special Window is being structured as an AIF to pool investments from other government-related and private investors including public financial institutions, sovereign wealth funds, public and private banks, domestic pension and provident funds, global pension funds and other institutional investors, etc. The fund is therefore expected not only to support the sector but also generate commercial return for its investors.
The Special Window will provide last mile funding to projects that meet the following criteria:
- Net-worth positive
- Affordable and middle-income housing project
- On-going projects registered with RERA
- Reference by existing lender
- Will includestressed projects classified as NPA and those in NCLT
Fund(s) created under the Special Window will be setup as priority debt funds. A detailed Investment Policy will be laid down to guide the selection of projects to be financed through a detailed due-diligence process that will include legal due-diligence, title due diligence, micro-market analysis, financial analysis, etc. The final decision will be taken by the Investment Committee of each Fund comprising of experienced professionals and industry experts.The Investment Committee will approve individual deals independently as per Investment Policy ensuring alignment with investment objectives of the Fund.
Oversight of investment process will be done by anAdvisory Board (on conflict of interest issues). A Governing Council may also be formed for overall strategic guidance.
The Investment Manager will be responsible to ensure that the funds are used only for construction through appropriate safeguards mandated by RERA and also through deployment of external project monitoring agencies.