The Government, being conscious of the economic situation in the country, is doing its bit to revive the ailing real estate sector, though in a gradual manner. Here is a list of some of the important measures taken by the Government for the sector.
The implementation of RERA was supposed to give a much-needed speedy redressal across India. However, in reality, except for certain States such as Maharashtra and Delhi, the results are not very welcoming. Moreover, at times, a favourable order either with respect to compensation for delay or change in the layout of the flats does not necessarily provide relief to the homebuyer as RERA needs to spruce up in relation to the execution mechanism. In order to provide respite to the developers and buyers, the Government has introduced certain effective measures. One such measure was taken on November 6, 2019, when the Finance Minister announced establishment of a Rs 250 billion fund, in the nature of Category-II Alternative Investment Funds (AIF). The Government, along with Life Insurance Corporation (LIC) and State Bank of India (SBI) were the main sponsors for the fund, which is to be managed by SBI Cap.
The funds are intended to be invested in affordable and middle-income projects that have positive net-worth. Projects eligible to avail the funds set up from the AIF need to be registered under RERA and fall in the affordable or middle-income category. The requisites to avail the benefit of AIF are:
- The project should not exceed a RERA Carpet area of 200 sq m.
- The unit cost should be:
- Up to or less than Rs 2 crore in the Mumbai region;
- Up to or less than Rs 1.5 crore in NCR, Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad;
- Up to or less than Rs 1 crore in the rest of India.
- The project should have positive net-worth but are stalled due to lack of adequate funds.
This announcement has given a much-awaited respite to homebuyers, particularly those from the lower and middle-income categories who had been affected the most.
We understand that AIF is expected to invest through instruments of non-convertible debentures in the stalled projects and fetch returns in the range of 15- 17 percent. Further, only after the project is completed and AIF has concluded its exit, the existing lenders in the project would be permitted to exit.
In a scenario where viability of the project remains a major cause of concern for buyers, the completion of projects largely depends on factors such as the amount of the advances the developer has actually received from the buyers, number of unsold units and the amount utilised in the project or siphoned away or used in another project besides the outstanding loans to be repaid. Under RERA, homebuyers have the option to take over the stalled projects and complete the same themselves, provided they can gather the resources to make the project operationally and financially viable.
For developers, the option is to complete the projects or compensate the homebuyers. RERA has provided the manner in which funds are to be deposited and deployed for the purpose of wiping out the rogueness, which was rampant in the industry. The law has mandated opening up of a designated scheduled bank account and withdrawing the funds only for construction of the project. However, one is yet to witness the effect on a builder who has contravened the provisions of the utilisation of funds from the scheduled bank as provided under RERA. The practice of diversion of funds is still being continued by many developers. In any event, developers who are genuinely interested in completing the projects and willing to be a part of the real estate industry on a long-term basis will adhere to their commitments as much as they can.
With NBFCs and the banks being restrictive in financing the real estate sector, the interest of homebuyers is also taken care of by the investments made by top investors, including Blackstone, Hine, and Brookfield. Private Equity investors have invested approximately Rs 380 crore in the first nine months of 2019, leading to cash flow in the Indian real estate sector and thereby propelling the completion of stalled real estate projects. At the same time, the interest of the developers is also taken care of by the Second Amendment Bill, which, if passed, will curb the menace of the homebuyers. Further, an amendment to SARFAESI has been proposed whereby debt owed to a secured creditor will get priority over all other claims. The Government is trying to provide stimulus to the real estate sector in such a manner that the recovery, though gradual, but will be stable in the long-term interests of the nation.
The changes introduced to revive the real estate segment will initially have some teething problems before easing things for the developers and buyers. At this point in time, a homebuyer is required to be diligent and vigilant prior to investing in an under-construction house. As for the developer, they need to comply and adhere to the obligations and guidelines laid down in various statutes for smooth functioning of their real estate business.