A Special Fund For Housing Projects

• 07 Nov 2019

Why in News

The Union Cabinet has approved the creation of an Alternative Investment Fund (AIF) of ₹25,000 crore to revive stalled affordable and middle-income housing projects across the country.

Key Points

• Fund Size
  
  • The fund size will initially be ₹25,000 crore with the government providing ₹10,000 crore and the State Bank of India (SBI) and the Life Insurance Corporation (LIC) providing the balance.
  • However, the fund is not capped at ₹25,000 crore and will likely grow as a lot of sovereign funds have shown interest.
• Fund Management
  
  • The fund will be set up as Category-II Alternative Investment Fund registered with the Securities and Exchange Board of India (SEBI).
  • It will be managed by SBICAP Ventures Limited (SVL). It is a wholly owned subsidiary of SBI Capital Markets Ltd.
• Eligible Projects
  
  • All affordable and middle-income housing projects that are
    
    • Net worth positive
    • Registered with the Real Estate Regulatory Authority (RERA) and
    • That have not been deemed liquidation-worthy.
  • Stuck projects classified as Non Performing Assets and those undergoing resolution under the National Company Law Tribunal will also be eligible for funding — a change from the announcement made in September 2019.
• Funding Procedure
  
  • The fund will provide money in escrow accounts that can be used only for completion of the identified projects.
  • The receivables from the project will be used to repay the fund.

Expected Benefits

• There are more than 1,600 housing projects which are stalled. The fund is expected to revive the same.
  
  • This will help in alleviating stress for homebuyers, real estate players as well as banks that have backed these projects.
• Impact on Other Sectors
  
  • Revival of the real estate sector will also lead to demand of cement, iron & steel industries, thus also generating employment.
• The fund will also generate commercial return for its investors.
  
  • The AIF is expected to pool investments from government-related and private investors, including public financial institutions, sovereign wealth funds, public and private banks, etc.

Alternative Investment Fund

• Meaning: AIF means any fund established in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.
  
  • An alternative investment is a financial asset that does not fall into one of the conventional equity/income/cash categories.
  • Private equity or venture capital, hedge funds, real property, commodities, and tangible assets are all examples of alternative investments.
• It is regulated by the SEBI.
• Categories
  
  • Category I AIFs: These generally invest in start-ups or early stage ventures which the government or regulators consider as socially or economically desirable.
    
    • e.g. venture capital funds, infrastructure funds.
  • Category II AIFs: These are AIFs which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012.
    
    • e.g. real estate funds, private equity funds.
  • Categories III AIFs: AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.
    
    • e.g. hedge funds, private investment in Public Equity Funds.

Source: TH