Alternative Investment Fund

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Context: The Union Cabinet has approved the creation of an Alternative Investment Fund (AIF) of Rs. 25,000 crore to provide last-mile funding for stalled affordable and middle-income housing projects across the country.

Relevance:
Mains:

  • GS II- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
  • GS III- Indian Economy and issues relating to planning, mobilization of resources, growth, development, and employment.

Issues in Real Estate Sector: 

The real estate sector is one of the most globally recognized sectors. The real estate sector comprises four sub-sectors – housing, retail, hospitality, and commercial. This sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13 percent of the country’s GDP by 2025.

But this sector has been dealing with crises due to the creation of NPAs subjected to delay in projects. Completed projects prove to be costlier than what the customer can afford. This creates an unbalance between supply and demand.

  • According to data provided by ANAROCK, a total of 5.76 lakh units — launched in 2013 or before — across budget project segments are stuck in various stages of non-completion in the top seven cities in the country. 
  • At present, total stalled budget projects in the Mumbai Metropolitan Region (MMR) and the National Capital Region (NCR) are the highest with at least 4,00,000 units (2,10,000 in MMR and 2,00,000 in NCR) pending completion.
    • In monetary terms, the approximate value of projects running behind schedule in MMR and NCR adds up to Rs 3,60,000 crore.
  • Bankruptcy among real estate developers have doubled over the past year, adding to the woes of NBFCs – another interesting fact that doubles up as evidence pointing at a real estate crisis.
  • Data from the Insolvency and Bankruptcy Board of India shows that a large number of realtors are under the insolvency resolution process, indicating that most of these builders may miss the deadline for crucial repayment of dues.
  • Another report by real estate research and analytics firm PropTiger said homes sales declined by almost 11 percent in the first half of 2019-20, indicating that there has been no improvement in the real estate business.
    • This is largely due to a 47 percent year-on-year slump in new projects launched, triggered by a severe lack of liquidity among builders.

The real estate sector is not only one of the biggest provider of jobs but also has a huge multiplier effect on the economy. Industries ranging from cement and steel to paints and sanitaryware stand to reap the benefits of a healthy real estate sector. So it becomes crucial for the government to intervene with suitable measures.


Alternative Investment Fund scheme:

  • The fund size under this scheme will initially be Rs. 25,000 crore with the government providing Rs. 10,000 crore and the State Bank of India and the Life Insurance Corporation providing the balance.
  • The fund, to be managed by SBICAP Ventures, will offer support to viable projects with a positive net worth and registered with the Real Estate Regulatory Authority.
  • It will also apply to projects that have been declared as non-performing assets by banks and to those lined up before the insolvency court. Apart from real estate promoters, this will also aid lenders, mainly finance companies and banks, whose funds are locked up in these projects.
  • The funds will be set up as Category-II Alternative Investment Fund registered with the Securities and Exchange Board of India and will be managed by SBICAP Ventures Limited.
  • The open-ended fund is expected to swell over time. The government is also in talks with sovereign bonds and pension funds to put in money in AIF further.
  • The Cabinet also approved the establishment of a ‘Special Window’ to provide priority debt financing for the completion of stalled housing projects in the affordable and middle-income housing sector.

Significance:

  • Over 1,600 projects involving some 4.58 lakh housing units are stalled for want of funds.
  • There are also unsold units across the country with one market estimate putting their value at over ₹4 lakh crore.
  • Most of the stalled projects are solvent but stuck for liquidity and with support from the AIF, can be completed, unlocking value not just for buyers but also precious cash for the project promoters and their lenders.

What are Alternative Investment Funds?

  • As defined in Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, AIFs refers to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP).
  • AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.

Hence, in India, AIFs are private funds that are otherwise not coming under the jurisdiction of any regulatory agency in India.

As per SEBI (AIF) Regulations, 2012, AIFs shall seek registration in one of the three categories:

Category I: Mainly invests in startups, Small and Medium Enterprises or any other sector which Govt. considers economically and socially viable.

Category II: These include Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator

Category III: Alternative Investment Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open-ended and for which no specific incentives or concessions are given by the government or any other Regulator.



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