The Alternate Investment Fund (AIF) of Rs 25,000 crore announced by the government for the realty sector may be insufficient to complete the 4.58 lakh eligible residential units that the AIF is envisaged to help and around Rs 35,000-45,000 crore would be required, according to rating agency ICRA.
The AIF has an expanded scope as compared to the fund announced by the government in September which brought only about 3.5 lakh housing units under its ambit. But the AIF is expected to benefit 4.58 lakh units.
“While the revisions in eligibility criteria appreciably expand the project coverage under the fund, especially given the large number of stressed projects which have been referred to NCLT or classified as NPA already, our initial concerns on the adequacy of the fund, the efficacy and timeliness of implementation, and demand risks for the unsold inventory associated with these projects, remain,” said Shubham Jain, Senior Vice President and Group Head at ICRA.
The AIF has also brought under its ambit projects that are NPAs or NCLT (but not marked for liquidation).
“As per ICRA estimates, around Rs. 35,000-45,000 crore would be required to fund the completion of the revised quantum of 4.58 lakh eligible dwelling units. Thus, even the enhanced fund size of around Rs. 25,000 crore may be insufficient to cover construction cost for all the eligible houses,” said ICRA.
The actual details of the AIF policy and their impact on project selection will be key to its success. ICRA also points out to the fact that the new fund does not specify a percentage of completion of a project as a criterion for eligibility and instead focuses on RERA registered incomplete projects with a positive net worth.
“The return expectations of private investors would need to be factored into the investment policy, which may result in some narrowing of the eligible project pool. Moreover, the framing of this policy is likely to take time, which, together with the due-diligence and selection process associated with each project, may delay the actual disbursement of funds”, said Jain.
Thorough monitoring of the AIF and its implementation will be critical to provide relief to the harassed homebuyers “especially given the concerns on developer ability and intent to complete the project”.
“Demand risk for the unsold inventory remains significant, and is exacerbated by the ongoing macroeconomic weakness. Going forward, the marketability and incremental sale generation from the funded projects will be another key look-out area, especially given the dependence of final recovery of debt obligations on the same,” added Jain.
The stress fund announced by the government in September had a size of Rs 20,000 crore and had excluded NPA and NCLT projects.