Work From Home Sector

Context: Recently, Nirmala Sitharaman handed over the first set of homes that were completed using capital provided by GoI’s Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund.

Challenges in the real estate sector:

• Delayed projects: Which had resulted in an erosion of trust that augmented consumer preference towards finished projects
• Funding issues:
  • Risk-averse banks:
    • In India, banks don’t fund the land component, a major part of the project cost, and even for the construction component, banks are risk-averse.
    • Moreover, the present lending structure enables banks to lend to companies as a whole, not to a specific construction project.
  • Failure of Non-Banking Financing Companies (NBFCs): After the Infrastructure Leasing & Financial Services (IL&FS) crisis, NBFCs, too, were unable to meet demand.
• Woes of the homeowners: Several homeowners who had already paid for under-construction units found their wealth stuck in delayed real estate assets.

Significance of SWAMIH: Adopting a unique financial structure that enables builders to complete projects in the interest of both builders and homeowners.

• SWAMIH fund provides money to projects as a stand-alone entity, not to a builder.
• The structure of financing is self-compliant.
  • Funding is distributed in stages, ensuring additional funds are disbursed only once the builder meets a particular project milestone.
  • At each construction site, there is a representative of an independent project management company who checks labour and material movement.
  • The fund has complete control over the input escrow account. This ensures scrutiny of funds to ensure proper due diligence.
  • The sanction limit is sufficient to complete the entire project without significant dependence on collections and incremental sales.
  • The interest and payment liability begins after the completion of the construction of the project.
• All investment decisions are taken by an independent investment committee, including an external member from domain experts, large law firms, construction companies etc.

Conclusion: The SWAMIH fund provides us with an innovative financing structure that must be replicated across several capital-intensive industries.