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Committee Led by Amitabh Kant Submits Report on Stalled Real Estate Projects

  • 24 Aug 2023

Recently, a committee of 14 members, headed by former NITI Aayog CEO and India’s G20 Sherpa Amitabh Kant, presented its findings on stalled real estate projects.

Key Points

  • Reasons for Stalled Projects: The committee identified "lack of financial viability" as the primary cause for stress in stalled projects, resulting in cost overruns and delays.
  • The report emphasized that improving the Internal Rate of Return (IRR) of projects would attract funding and address the issue.
  • Recommendations: The committee made several recommendations to address the challenges of stalled real estate projects:
  • Enforcing RERA Registration: The committee reiterated that projects meeting specific criteria must be registered with the respective state RERA for transparency.
  • De-linking Grant of Registration: The committee suggested detaching registration or sub-lease grant from developers' dues recovery. Around 1 lakh homebuyers could benefit from this.
  • Expedited Certificate Grant: In cases where projects are substantially complete, administrative hurdles often delay granting no-objection and completion certificates. The committee proposed streamlining this process by RERAs.
  • Rehabilitation Package: States were advised to establish a rehabilitation package to revive stalled projects. Developers joining this package would commit to project completion within three years.
  • Model Package Example: The committee provided a model package example for Noida and Greater Noida. It included a "Zero Period" during the pandemic, co-developer involvement, and a "partial surrender policy" for unused land.
  • Implementation: The implementation of recommendations largely falls under the jurisdiction of respective state governments.
  • States will decide on the extent and nature of implementation. UP's Noida and Greater Noida authorities have already initiated steps based on the committee's suggestions.
  • Central Government's Role: The report recommended proactive financing of stalled projects through the Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund.

Overview of SWAMIH Fund

  • What is SWAMIH: The Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund I has been established with a distinct focus on revitalizing distressed and halted residential projects in the affordable and mid-income segments.
  • Sponsor and Management: Sponsored by the Ministry of Finance, Government of India, the SWAMIH Fund operates under the guidance of SBICAP Ventures Ltd., an entity within the State Bank Group.
  • Dedicated Real Estate Expertise: Renowned for its specialization, the fund boasts one of the largest domestic real estate private equity teams.
  • SEBI Registration: Recognized as a Category-II AIF (Alternate Investment Fund) debt fund by the Securities and Exchange Board of India (SEBI), the SWAMIH Fund adheres to stringent regulatory standards.

Current State of Housing Projects:

  • As per the Indian Banks’ Association (IBA) assessment, a staggering number exceeding 4 lakh dwelling units, amounting to more than Rs 4 lakh crore, are directly affected by the stagnation in these distressed real estate ventures.
  • According to the findings of the committee, a substantial 44% of these suspended projects are concentrated within the boundaries of the National Capital Region, with an additional 21% being located in the Mumbai Metropolitan Area.

Key Challenges in the Indian Real Estate Sector

  • Affordability and Financial Volatility: Urban housing presents exorbitant prices, making it a challenge for the majority to afford homes in major cities due to rising construction costs driven by global commodity price increases.
  • Inefficient Project Management: Multiple clearances from various government departments, delayed approvals from civic bodies, limited funding sources, and budget overruns due to substantial delays impede efficient project execution.
  • Lack of Transparency: While real estate agents and projects are registered, not all are verified, highlighting gaps in authoritative action and transparency.
  • Corruption: A nexus involving corrupt officials, builders, and local political figures undermines adherence to laws and regulations, such as land-use norms, FSI, and safety compliance.

Steps Taken to Address Real Estate Sector Challenges in India

  • Affordability Focus:
    • Government emphasis on affordable housing to make homes accessible to all.
    • Changes in floor space index (FSI) rules discourage land hoarding.
    • 'Housing for All' initiative boosts demand for affordable housing, infusing liquidity.
  • Enhancing Transparency:
    • Implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA) enhances sector transparency.
    • RERA facilitates improved project approval information availability, fostering investor confidence.
  • Revival of Stalled Projects: Launch of the Special Window for Affordable & Mid-Income Housing (SWAMIH) fund to revive stalled projects.
  • Affordable Housing Fund:
    • Establishment of an affordable housing fund with an initial corpus of around INR 10,000 crore.
    • The fund supports housing finance companies (HFCs) in the priority sector.
  • Real Estate Debt Restructuring: Initiatives for restructuring real estate debt to alleviate financial burdens.
  • Moratorium Benefits during Pandemic: During the COVID-19 pandemic, moratorium provided on interest payments for loans.