AIFs or Alternate Investment Funds, as per SEBI guidelines, operate in 3 categories. They, like mutual funds, pool capital from investors, primarily HNIs and Institutions to invest in various asset clases. Category I, AIFs invest in start-ups or early-stage ventures, SMEs, infrastructure or other areas which the government or regulators consider as economically desirable. Category II, AIFs include real estate funds, private equity funds, and funds for distressed assets. Such funds are prohibited from raising debt except for meeting day-to-day requirements. Lastly, Category III, AIFs are those investing with view to making short-term returns and include hedge funds and PIPE (Private Investment in Public Equity) funds.
In a bid to boost the ailing real estate sector, which is sitting on a large inventory of unsold and incomplete projects, the Government in the first week of November 19, proposed to create a Category II, AIF to provide last-mile funding to the sector. The Centre plans to invest Rs. 10,000 crore in the fund, while Rs. 15,000 crore will be pooled from domestic institutions such as LIC and other investors in a phased manner. It is expected that apart from PSU and other banks, foreign institutions also would participate in the fund. The fund will be managed by SBI Caps.
Subsequent to the massive default by IL&FS on its debt obligations, the resultant liquidity crisis has now engulfed among others entities such as DHFL, Altico and Anil Ambani controlled financial outfits. This has adversely impacted both developers in real estate sectors as well as home buyers resulting in further additions to the already large unsold housing inventories. Legacy projects have also been stalled by developers, who have been diverting funds to other projects and then running out of money. The Centre’s proposed AIF worth Rs. 25,000 crore is expected to fund stalled projects in order to rescue home-buyers. It is estimated that there are about 1,600 stalled projects with about 4.58 lakh housing units. If you are an aggrieved home buyer who has not received possession of your property, then there’s hope for you from the AIF. Over 80 per cent of the stalled housing projects are believed to be in the mid to affordable range, the target segments for this fund. Banks and NBFCs which have lent money to these projects will now, hopefully, receive their payments and thus will be better off because, this measure, apart from improving liquidity would lower creation of new NPAs.
Projects, to be eligible for the AIF, need to meet a few conditions. The housing unit should not exceed 200 square metres in carpet area, and come with a city-wise price cap of up to Rs. 2 crore. Only RERA-registered stalled projects will be eligible. The Centre has allowed the AIF to include projects that have been declared NPAs and undergoing insolvency proceedings under NCLT (but not under liquidation). However, these projects need to be net worth positive, that is, the value of stock of sold and unsold inventory should be higher than the cost of completion of the project.
This arrangement however, will have to negotiate a few challenges before it provides an effective solution to the problems plaguing the sector.
First, the initial corpus of Rs 25000 cores is a drop in the ocean given the magnitude of unsold inventory and stalled projects. So it is essential that there is widespread participation by institutional investors, both domestic and foreign, outside of public sector entities for funding the AIF. It is important that the stalled projects are vetted and approved under this fund, with expedition, and they are completed at a cost that generates a good return for its investors.
Second, AIF addresses the problem from the supply side. To the extent the sector is saddled with excess unsold inventory, there must be adequaute demand for such unsold inventroy. While lowering interest rate might improve demand for new units to some extent, the real fillip to the demand has to come from lower prices. Will the prices come down enough to push up demand?
Thirdly, there is the question of ‘moral hazard’. Once a precedent is set, there is strong reason to believe that there can be further such schemes, which could make the benficiaries default on their obligations. Depending on how the scheme is restructured in terms lending rate and the time provided for repaying the debt, builders may pull back on their commitments to potential home owners, hoping to get this benefit in future. This is not very different from the populist farm loan waivers.
Buying a House? What do You Get?
There are many factors that we consder before finalising the price we are willing to pay for the dwelling unit we wish to acquire. They include location, age and condition of the property, local amenities such as hospitals, and transit facilities, and economic condition of the market. However, size and usable area play an important role in determining the final price of the house. Therefore, as a home buyer, you need to determine whether the property is worth the price, for its size.
There are three key terminologies that you as a home buyer should understand before purchoosing a flat – carpet area, built-up area and saleable area.
Carpet area is the net usable floor area of an apartment and includes all rooms – kitchen, living room, bedroom(s), bathrooms and utility room within the home. In other words, it is the area that can actually be covered by carpet. This area, as per RERA guidelines, does not include the area covered by the external walls, balcony or terrace, even if it is exclusive to your home. Also, the vent shafts from the kitchen or toilets and other utility ducts are also not included in the carpet area. However, the carpet area includes the thickness of the inner walls of the house and even inner staircases. Generally, carpet area constitutes around 70-90 per cent of the built-up area.
So if you wish to have relatively spacious property, you should choose the one which has more carpet area.
Built-up area comes after adding carpet area and wall area. Super built-up area is the total built-up area of your property or flat plus proportionate share of the common amenities in your building complex. It is also known as saleable area. For instance, if have a built-up area of 1,000 sq ft, then the carpet area may be 70 per cent, that is 700 sq ft.
The price of a house property is based on the saleable or super built-up area which not only includes the actual usable area (built-up area) of your flat but also additional areas such as lobbies, staircases, swimming pool, garden and other amenities. Normally, the costs of additional spaces are charged proportionately to each flat. This means, the price of the actual usable area of the housing unit may differ from the area you are charged for (saleable area). This difference (between saleable area and carpet area) is known as loading factor and often not disclosed by developers.
Post the implementation of RERA, all the registered builders are mandated to mention the carpet area in the agreement with home buyers. But RERA allows a 3 per cent deviation from the carpet area mentioned in the document. When the exact carpet area is specified in the document buyer knows what he is getting, because carpet area can be measured unlike saleable area which can only be estimated.
