Pranav Vijay Sonar
Abstract
A competent workforce from tier II and tier III has moved to satellite towns as a result of the hybrid method of work which has increased the need for affordable and mid-income housing in these areas. However the crunch in funds results in stalled projects that delay the delivery of homes to buyers. To address this issue, the government introduced the SWAMIH investment fund in 2019. Despite the strict eligibility criteria to get the funding, it plays a huge role in completing the government’s objective of ‘Housing for All’.
Background
India has witnessed significant growth in the real estate sector post-independence, particularly after the 1990s. This market is believed to be ever-evolving and expanding in the future while being the second-largest in terms of workforce and job generation in the Indian market. The real estate industry contributes greatly to the economic growth of the Indian economy and is the third largest recipient of FDI. It is anticipated that by 2025, the real estate sector will account for 13% of the nation’s GDP, and real estate sales will touch $1 trillion by 2030.
Considering the importance of housing and shelter in ensuring physical, psychological, social and economic security to the people of a nation and recognising the need for planned urbanisation and development of existing urban areas, many policy measures have been formulated and galvanised by the Indian government and many other national, sub-national and international agencies in the past few decades. There are several laws to oversee the registration, and transfer of properties, and to bring transparency in the market.
In 2014, REITs (Real Estate Investment Trusts) were formed to enable investors with modest financial resources to make secure investments. To safeguard consumers’ interests and promote city development, the Real Estate (Regulation and Development) Act was passed and came into force in May 2017. The implementation of RERA has improved transparency and investor trust. Experts believe it’s a start in the right direction.
However affordability still remains a major concern for those actually suffering from housing inadequacies as the interest rate subvention on housing loans borrowed by the EWS (Economically Weaker Section) is grossly insufficient to match the housing costs and prices, especially in bigger Indian cities. Limited access to suitable land has also hamstrung the project implementation.
However, the real estate sector has been affected by stalled and incomplete projects due to the funds crunch. The lack of liquidity on the developer’s side led to financial stress and inventory pile-up. The developers would start a project, but funding gaps and liquidity issues prolonged the expected delivery of homes to buyers/investors. There was a need to address this problem to revive distressed projects and also promote affordable housing.
About the SWAMIH fund
The Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund I is India’s largest social impact fund specifically formed for completing stressed and stalled residential projects. The Fund is sponsored by the Ministry of Finance, Government of India, and is managed by SBICAP Ventures Ltd., a State Bank Group company, since its launch in November 2019.
The SWAMIH fund was created in response to the many stalled housing projects in India. According to a report by the National Housing Bank, there were over 150,000 stalled housing projects in India as of 2019, with a total project cost of over ₹2 trillion. According to a 2018 report by the National Housing Bank, there is a shortage of 19.7 million housing units in India, of which 9.2 million are in the affordable and mid-income segment. These stalled projects were impacting the lives of millions of homebuyers, who were unable to get possession of their homes.
The SWAMIH fund was designed to address this problem by providing funding to developers of stalled housing projects. The fund would provide loans to developers at a concessional rate of interest, and would also provide technical assistance to help developers complete their projects.
Functioning
The SWAMIH fund provides debt financing to developers of stalled affordable and mid-income housing projects. The fund can provide up to 70% of the project cost, with the remaining 30% being financed by the developer. The interest rate on SWAMIH loans is set at 6.5% per annum. The Sponsor of the Fund is the Secretary, Department of Economic Affairs, Ministry of Finance, on behalf of the Government of India, and has the authority and responsibility as specified under SEBI (AIF) Regulations, 2012.
AIFs (Alternate Investment Funds) created/funded under the Special Window would solicit investment into the fund from the Government and other private investors including cash-rich financial institutions, sovereign wealth funds, public and private banks, domestic pension and provident funds, global pension funds and other institutional investors. The SWAMIH fund has a number of features that make it attractive to developers. First, the fund provides long-term financing, with a maximum loan tenure of 20 years. Second, the fund is sufficient to complete the project without any reliance on additional capital at a later stage. Third, the fund is transparent, with clear eligibility criteria and a transparent application process.
For a project to be eligible for the selection for funding it should satisfy the following criteria:
- RERA registered project
- Stalled for lack of adequate funds
- Being developed as an Affordable and Middle-Income Category
- This includes housing units that do not exceed 200 sqm RERA carpet area (net usable floor area of an apartment)
- Houses are priced as follows:
- Less than INR 2cr in the Mumbai Metropolitan Region
- Less than INR 1.5cr in National Capital Region, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad
- Less than INR 1cr in the rest of India
- Net worth positive projects (including NPAs and projects undergoing NCLT proceedings)
- Has completed at least 30% of the construction and development
- Requires last mile funding – sufficient to complete construction
Performance
The SWAMIH fund has been performing well since its inception. As of March 2023, the fund has approved loans for about 130 projects with a total cost of over ₹12,000 crore. In three years since its inception in 2019, the Fund has already completed 20,557 homes and aims to complete over 81,000 homes in the next three years across 30 tier 1 and 2 cities. The Fund has been able to complete construction in 26 projects and generate returns for its investors.
SWAMIH investment fund has worked its way through the difficult period of the COVID-19 pandemic and completed its first residential project. The Rivali Park residential project, located in Borivali (East) Mumbai, was the first housing project in India to have received funding under the SWAMIH Fund. The project was launched in 2010 and due to various reasons was delayed by about 5 years.
Despite losing 4-5 months in COVID, after the funding the project was completed in about 1.25 years and is also the first stalled housing project to have been completed, delivering homes to 708 people. Out of the 27 projects of the Amrapali group, SWAMIH has funded 6 projects with a total saleable area of 92,71,000 sqft. The projects are spread across Noida and Greater Noida.
The investment team for the fund consists of over 30 investment professionals, with an average of 15 years of industry experience, and is one of the largest teams in India on the buy side. The fund aspires to deliver 20,000 homes per year for the next three years. The SWAMIH fund has helped to revive a number of stalled housing projects and has provided relief to millions of homebuyers.
Impact
The Fund has helped a steady revival of the construction and sales cycle. It has also played a critical role in the growth of many ancillary industries in the real estate and infrastructure sector having successfully unlocked liquidity of more than Rs. 35,000 crore. The liquidity has helped many financial institutions get debt repayments with a multiplier effect of 2.5 to 3 times across all ancillary industries. The funding boosted the confidence of other banking institutions who funded the remaining projects.
Stalled projects that were completed after the help was received through funds, ensured the contractors/vendors got their dues cleared and employees got salaries paid. SWAMIH’s investments in affordable housing projects have created a positive impact on the country’s overall housing sector. The fund has helped to create jobs in the construction sector and has also helped to boost demand for real estate. The fund has also helped to increase the tax revenue generated by the government.
A large amount of capital locked up in the stalled projects was released once these projects were constructed and completed. It significantly improved the portfolios of Banks and NBFCs. It encouraged developers to focus on affordable and mid-income housing which aligns with the government’s ‘Housing for All’ mission. This has helped to reduce the shortage of affordable and mid-income housing in the country. An increase in affordable housing helped reduce income inequality and inclusive growth.
Emerging Issues
There are a few emerging issues that need to be addressed in order to ensure the continued success of the SWAMIH fund. One issue is that the fund is currently facing a shortage of projects. The fund has a large corpus of funds, but there are not enough projects that meet the eligibility criteria. This is due to the fact that the eligibility criteria are quite strict. One more issue is the need to improve the speed of disbursal of loans under the fund
Another issue is that the fund is facing competition from other government schemes, such as the Pradhan Mantri Awas Yojana (PMAY). The PMAY is a much larger scheme than the SWAMIH fund, and it offers developers a number of benefits, such as subsidies and tax breaks. This is making it difficult for the SWAMIH fund to attract developers.
Apart from these issues, the following are some issues that need to be addressed in the future:
- The need to increase the availability of land for affordable housing projects.
- The need to improve the regulatory environment for affordable housing projects.
- The need to increase the participation of private sector developers in the affordable housing sector.
Way Forward
The SWAMIH fund has the potential to play a significant role in addressing the shortage of affordable housing in India. However, the fund will need to address the emerging issues mentioned above in order to achieve its full potential. The government should take steps to increase the availability of land for affordable housing projects. This could be done by providing incentives to states to release land for affordable housing projects or by using government-owned land for affordable housing projects.
The government should also improve the regulatory environment for affordable housing projects. This could be done by streamlining the approval process for affordable housing projects or by providing tax breaks to developers of affordable housing projects. Another step that the government could take is to increase the marketing and outreach efforts for the fund. This would help to raise awareness of the fund among developers and homebuyers.
The government could also consider merging the SWAMIH fund with the PMAY. This would create a larger and more effective fund that could provide more affordable housing to the people of India. Finally, the government should encourage private sector participation in the affordable housing sector. This could be done by providing financial assistance to private-sector developers or by creating a public-private partnership model for affordable housing projects.
Conclusion
The SWAMIH fund is a valuable tool for the government to use to address the problem of affordable housing in India. The fund has already had a positive impact on the sector, and it has the potential to make a much more significant impact in the years to come. However, the government needs to take steps to address the emerging issues in order to ensure the continued success of the fund.
By relaxing the eligibility criteria, increasing the marketing and outreach efforts, and considering merging the SWAMIH fund with the PMAY, the government can make the fund even more effective in providing affordable housing to the people of India. If these challenges are addressed, the SWAMIH fund has the potential to provide housing to millions of low- and middle-income households in India.
References
- Times Property (2022, December 22). Evolution of the Real Estate Sector in India
https://timesproperty.com/news/post/real-estate-evolution-in-india-blid3481 - Arjun Kumar(2015, July 01). Housing Shortages in Urban India and Socio-economic Facets
https://journals.sagepub.com/doi/epdf/10.1177/0974930615578499 - PIB Press Release (2019, November 07)
https://pib.gov.in/Pressreleaseshare.aspx?PRID=1590799 - PIB Press Release (2023, March 04)
https://pib.gov.in/PressReleasePage.aspx?PRID=1904147 - Arjun Kumar, Soumyadip Chattopadhyay(2022, May 21). Affordable Urban Housing and Budget 2022–23: A Reality Check
https://www.epw.in/journal/2022/21/commentary/affordable-urban-housing-and-budget-2022%E2%80%9323.html - Aanchal Magazine (2023, March 06). What is the SWAMIH investment fund and its affordable housing push
https://indianexpress.com/article/explained/explained-economics/swamih-investment-fund-affordable-housing-explained-8480560/ - National Housing Bank Annual Report, 2019-20
https://nhb.org.in/wp-content/uploads/2020/11/NHB-Annual-Report-2019-20-English.pdf - National Housing Bank Annual Report, 2018-19
https://nhb.org.in/wp-content/uploads/2019/12/NHB%20Inside%20Hindi.pdf
https://sbicapventures.com/governance/swamih-investment-fund-i-governance/
https://sbicapventures.com/swamih-investment-fund-i-faq/
https://sbicapventures.com/funds-managed/swamih-investment-fund-i-amrapali-group/
https://sbicapventures.com/funds-managed/swamih-investment-fund-i-rivali-park/ - Yuvraj Mandal (2023, August 23). The Riddle of Affordable Housing in India: SWAMIH and Credit Linked Subsidy Scheme
https://www.impriindia.com/insights/housing-swamih-credit/
Acknowledgement: The author would like to thank Mansi Garg and Aasthaba Jadeja for their kind comments and suggestions to improve the article.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organization.
Pranav Vijay Sonar is a Research Intern at IMPRI.
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