Swamih’s Rescue Of Rivali Park - First Stalled Housing Project To Be Completed
The second phase of Rivali Park, an apartment block in suburban Mumbai, will soon be ready. The occupation certificate, certifying that the place is fit to move in, is likely by month-end. Something all housing projects require. Rivali Park II, however, is different in one aspect. It will be the first rescued project to be completed.
The fund infused about Rs 120 crore in Rivali Park, Rohan Khatau, director at Cable Corporation of India Projects Pvt., the developer of the project, told BloombergQuint over the phone.
Irfan Kazi, chief investment officer at SBICAP Ventures Ltd., the manger of Swamih fund, declined to comment saying that the fund is not allowed to reveal the amount disbursed.
Work on the first phase of Rivali Park started in 2010 and was delivered to buyers in 2016. The second was launched in 2013. “This phase comprised six buildings of varying heights and unit configurations and had 708 units in all,” said Khatau. The developer sold 85% of the units before the project was stalled.
How It Stalled
In September 2018, after the IL&FS default, the real estate sector saw a liquidity freeze. “When the NBFC crisis hit the market, credit completely dried up,” said Khatau.
BloombergQuint had earlier reported that Indiabulls Housing Finance Ltd. was the initial lender to Rivali Park.
The developer tried to raise money on its own but as the sum was too large and no one in the market was willing to lend, major work came to a standstill, said Khatau.
Moreover, in 2018, the Mumbai real estate market was battling a slump stemming from an economic slowdown, demonetisation and a new housing law. Bad market conditions compounded the problem, he said.
In budget 2019, Finance Minister Nirmala Sitharaman announced the rescue fund.
“We were already struggling for a year, so this caught our attention," Khatau said. The company started gathering information about the fund through the State Bank of India, industry sources and international property consultancies. “When the fund was launched in November 2019, we sent an email.”
The fund sought details in a set format, and then some more. “This was in November 2019. In December, things picked up fast. After discussions, we got to know that we fit into their eligibility criteria quite well.”
The Swamih Fund infuses money in projects:
- That were at least 30% complete.
- Fell under affordable to mid segment.
- Had a positive net worth
- Were registered with RERA.
According to the eligibility criteria, the fund invests in a project with 90% of the units in the affordable to mid segment. In Mumbai, that includes units priced up to Rs 2 crore, excluding parking charges, society club house charges and brokerage.
Of the 708 units at Rival Park second phase, only 12 are premium and the remaining fall in the mid segment.
“We fit into all of their criteria in terms of apartment sizes, value and our existing lenders also supported us,” he said. “In December, we got their in-principal approval which was subject to due diligence.”
The fund appointed five consultants for financial, technical, regulatory and other issues. “This detailed due diligence of various assets of the company that they undertook took about a month or so,” said Khatau. “We got the sanction on Feb. 1, 2020. The entire process was wrapped up in six-eight weeks.”
Since the Covid-19 led lockdown stalled construction activity, work gathered pace only in September-October after India eased restrictions.
Dealing With Lenders
One of the roadblocks for most developers of stalled projects was that existing lenders didn’t agree with the terms of infusion by the rescue fund.
When the Swamih fund invests in a project, it gets a senior charge and 100% cash flow till it recovers its returns before cash can be shared with the lender. The rescue fund targets an internal rate of return of 12% a year. This was higher at 15% but was cut by 3 percentage points in the second half of 2020.
“It wasn’t easy to deal with the lenders, but they did support us eventually after many discussions and conversations,” said Kahtau.
Economics Of Rescue
The fund seeks a 12% annual return but it doesn’t have a monthly coupon. “It is not like a typical loan where you pay the interest every month or every quarter,” said Khatau.
The developer and fund agreed on a specific business plan, which is audited and the money is disbursed on meeting construction milestones.
“They also have several auditors present permanently at the construction site. We also do our internal audit, then it goes to their auditors and finally to the bank and then the money is disbursed,” said Khatau. The process between asking for funds and receiving the money is a matter of days and it does not take long, he said.
While existing homebuyers “reacted very positively” to Swamih’s intervention, Khatau said the developer is also selling remaining units. “We have done approximately 7-8% new sales since the intervention of fund and another 7-9% are to go.”
“We are going to get the OC soon and once you get it, there is no goods and services tax applicable on the agreement value,” he said. “A lot of customers who are visiting are waiting to close the deal after the OC comes in to save on GST.”
Khatau is confident that the fund will be able to exit the project this year.