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AIF for real estate: Great move but the devil is in the details, say experts

Finance Minister Nirmala Sitharaman yesterday said the government has introduced a special window to provide priority debt financing for the completion of stalled housing projects in the affordable and middle-income housing sector. The government will invest Rs 10,000 crore in the Rs 25,000 crore alternative investment fund. LIC and SBI will invest the remaining amount and the fund will be managed by SBICAPS.
Terming it as a "great move", Sharad Mittal of Motilal Oswal said that the decision "will help unlock a lot of capital which is locked into these projects".
“My sense is that projects which will require the last mile for solutions and chronic cases, the number could be Rs 50-200 crore. Therefore, we are looking at close to 250-300 projects if I take an average of Rs 100 crore which could actually see completion," said Mittal.
'Devil is in the details'
Srini Sriniwasan of Kotak Investment Advisors said that although the government has the right intentions, the devil is always in the details. "I do worry about the specific condition that was part of the press release which is the money will go towards projects with positive net worth.”
“Remember that the bulk of the projects are housed in SPVs. These SPVs tend to have very thin capital structures. So it’s easy for them to lose their net worth. Therefore, I am not sure whether that condition is a concurrent condition applicable on all projects or it is just one-off...," said Sriniwasan.
“There are 2 or 3 other complications that we will have to deal with as we go into this. First of all, there has to be sufficient cash flow available between the sold and unsold inventory for this money to go in and get its desired returns," he added.

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