Viewpoint on the announcement made by the FM to boost the real estate sector through AIF

Acknowledging the plight of the homebuyers, recently the Hon’ble Finance Minister made an announcement pertaining setting up of Rs25,000cr fund, being in the nature of Category II AIF.

Nov 28, 2019 10:11 IST India Infoline News Service

Real Estate in Mumbai
The real estate sector has off lately been in the limelight for mostly the plights of the homebuyers who have not been provided with their promised abode and being left in lurch. Acknowledging this ordeal of the homebuyers, RERA has been enacted which is been seen as a beacon of hope for the homebuyers and also to instil some discipline in the real estate sector. The insolvency law of the land i.e. the IBC has also been amended with a view to provide an ammunition to the homebuyers to have their say in the insolvency resolution process. Subsequently, many petitions were filed, especially by the developers, to challenge the constitutional validity of the amendment to the IBC for homebuyers. Recently, the Hon’ble Supreme Court has upheld the constitutional validity of such amendment to IBC thereby retaining the cheer on the homebuyers face.    
Having said so, the plight of the home buyers is yet to be addressed in an effective and efficient manner as most of the aggrieved home buyers are yet to be provided with any ‘constructive’ remedies.
Acknowledging the plight of the homebuyers, recently the Hon’ble Finance Minister made announcement pertaining setting up of Rs25,000cr fund, being in the nature of Category II AIF. The categories of homes, projects and the cities have been clearly earmarked which would be able to seek benefit under this special window. The government will act as a sponsor with its Rs10,000cr initial contribution to such Fund. While State Bank of India (SBI) and LIC will provide an additional Rs15,000cr for the fund, that is proposed to be managed by SBI Cap. Some overseas institutional investors/ Sovereign Wealth Funds etc. are also expected to be part of this process as it would be a great opportunity for them as well to be part of this magnanimous project, both for commercial as well as non-commercial reasons. 
On a review of the projects that would be covered by these measures, it becomes clear that the homebuyers in the affordable and middle-income housing units are set to benefit, which has basically been at the heart of this entire home buyer saga. The fund will address residential properties in Mumbai that are priced below Rs 2 crore. For Delhi, Kolkata, Bengaluru, and Chennai, among others, the cap has been set at Rs 1.5 crore. For smaller cities, it is at Rs 1 crore per unit. All types of stalled projects, regardless of the stage of completion, will be considered for financing. The key requirement is to demonstrate a positive net worth at the project level.
By the announcement, it can be safely said that AIF structure has received a booster shot by being chosen as the preferred mode for reviving the intended stalled real estate projects. AIF structure carry various benefits such as pass-through tax status and informed investor base. If the proposed measures bear fruits, then the AIF structure would likely be viewed as a go-to structuring model, thereby further widening its popularity, especially for overseas investors.
AIFs in India are required to be registered with SEBI and regulated under SEBI AIF Regulations, 2012. AIFs can be in the form of a trust, company, LLP or a body corporate. However, the trust route has been the most preferred one. AIF, being a pooled investment vehicle, collects funds from investors who are in turn issued units. For setting up of an AIF, the key elements inter alia are determining the sponsor (person who sets up/promotes the AIF), the AIF model, investment manager, trustee and most importantly the focus sector.
The money collected for the AIF will be kept at an escrow account and its disbursement will be in a phased manner according to the requirement of each project in a time-bound manner.
Here the intent of the government needs to be applauded that it took a substantial step in the direction to resolve the impending problems of the homebuyers, who after putting their life time savings, at least in most of the cases, were appearing helpless with any ‘real’istic solution on the horizon.
This step is undoubtedly a positive one and it is hoped that the aching problems of the innumerable home buyers at last receives some relief due to this worthy step of the government.   
Care needs to be taken on the utilization of the Fund earmarked for revival of the stalled projects and at the same time the monitoring of the projects would have to be done in an accountable manner for which professional firms can be engaged to ensure that the desired objects are met. This has to be done to ensure that there is no diversion/misuse of funds. If one takes a holistic approach, representatives of the homebuyers could also be made part of the such monitoring and fund utilization exercise. This could be done so that the entire process is done in a transparent manner and that the very objectives of this measures are eventually achieved.
Authored by Ashish Parwani, Partner, Rajani Associates, Rajeev Nair, Principal associate, Rajani Associates and Nishant Sogani, AssociateRajani Associates.

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