Here are today’s editorials which talks about “Real estate shelter: On Alternative Investment Fund”. These editorial articles are done on regular basis in order to help aspirants preparing for important government, banking and insurance exams. The English section in these exams is often considered difficult, however in order to enhance the vocabulary of the candidates we regularly publish such articles in which we highlight difficult words and their meanings respectively. This not only aims to help you understand the editorials of prominent publications, but it will even help the candidates in reading comprehension section.
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Real estate shelter: On Alternative Investment Fund
The Alternative Investment Fund could help revive the stressed sector
From first looks, the long-awaited (having been expected for a long time) package to support the real estate sector, cleared by the Cabinet on Wednesday, appears well-designed. The ₹25,000 crore Alternative Investment Fund (AIF) announced by Finance Minister Nirmala Sitharaman has expanded in both size and scope from the earlier one announced in September. And the variables are clear such as the unit sizes that will be supported. The AIF will provide funds to bail out stalled (delayed in taking action) real estate projects with unit size of less than ₹2 crore a unit in metros and ₹1 crore in other places. The Centre will contribute ₹10,000 crore, with the State Bank of India and Life Insurance Corporation of India providing the balance. The fund, to be managed by SBICAP Ventures, will offer support to viable (able to be done) projects with a positive net worth and registered with the Real Estate Regulatory Authority. What makes the scheme good is that it will also apply to projects that have been declared as non-performing assets (loans or advances that are in default or in arrears) by banks and to those lined up before the insolvency (condition of not having enough money to pay debts) court. Apart from real estate promoters, this will also aid lenders, mainly finance companies and banks, whose funds are locked up in these projects. According to Ms. Sitharaman, 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 (having enough money to pay all your debts) but stuck for liquidity (the ease of conversion of something to cash) 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.
The real estate sector is not only one of the biggest provider of jobs but also has a huge multiplier effect in the economy. Industries ranging from cement and steel to paints and sanitaryware stand to reap the benefits of a healthy real estate sector. This is apart from banks and financial institutions. While the AIF is a good idea, it is important that it is implemented without glitches (a small fault or problem). Too many good ideas have suffered due to bad implementation. The critical part will be identifying the genuine projects in need of support and ensuring that biases (action of supporting a thing in an unfair way) do not creep in. Also important will be attracting more investors into the AIF. The Finance Minister said that sovereign funds (state owned funds that invest in real and financial assets) and other private investors have shown interest. These need to be followed upon quickly and money should be released from the AIF right away so that the trickle-down effect (a situation in which something that starts in the high parts of a system spreads to the whole of the system) is felt before the end of this financial year. Along with private money in the AIF will also come return expectations that need to be managed. The government, through its latest move, and the Reserve Bank of India with successive rate cuts and liquidity infusion (act of providing more money to make something stronger), have set the stage. The real estate industry now has to do its part.
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