Homebuyers awaiting possession of delayed projects have written to Prime Minister Narendra Modi seeking government’s intervention to ensure they receive delivery of their apartments and are not left to run from pillar to post.
In a letter sent to the Prime Minister recently, Fight for RERA, a pan-India homebuyers forum, said that "a committee be formed to come up with a Satyam Computer-like solution to provide reprieve to homebuyers whose life-time savings are stuck in unfinished projects. Time is of the essence and any delay would leave homebuyers in a lurch permanently since there will be nothing left in the companies to complete the projects."
"Hence, we strongly feel that the time has come for your government to take action in line with action taken during Satyam Computers fraud for resolving the issue before it becomes more complex and reaches a point of no return. It’s our humble suggestion to form an empowered group comprising officials from the PMO, MoHUPA, real estate sector experts, consumers, bankers, renowned industrialists with impeccable integrity to suggest merger, takeovers, asses financial conditions, immediately stop asset stripping and suggest a way forward to ensure completion of projects,” said the letter.
But the question here is whether the government can directly intervene in a matter that concerns real estate developments by private entities? According to legal experts, to protect the interest of homebuyers who have been facing long delays, courts can give legal direction to the Central government to appoint its construction arm to act as a project supervisor and see to it that the project is completed. The state governments, too, can directly appoint the government’s real estate arm to fulfill the role of a project manager in public interest.
"In public interest, a court can direct the government to appoint a government agency which is already into housing to conduct due diligence of a project that has not been delivered on time. As part of the due diligence process, the agency can interact with buyers and the builders and submit its report on the timelines within which the said project can be handed over to the buyers or whether it may not be feasible to complete the project at all as the builder has incurred losses or as the case may be," say industry sources who did not wish to be named.
However, legal experts say government intervention can come only after a court order. "The government cannot step in unless there is a legal sanction or judicial direction for it to intervene in cases wherein project completion has been delayed. Usually lenders (financiers) have a step in right," says Sudip Mullick from Khaitan & Co.
In July last year, the Supreme Court had directed the state-owned construction company to verify compliance of safety norms by real estate firm Supertech Builders in its 40-storey twin towers project Emerald Court located in Noida and if the two towers are located at a safe distance.
Legal experts say that financiers of delayed projects also have the option of bringing in new developers with an established track record to finish incomplete projects or courts can give a direction to the government that an external agency, usually its construction arm or reputed technical institutes, be brought in to submit its feasibility report and eventually complete the project.
Such a third party can also give an assessment of how much money will be required to complete the project, the remaining amount that can be raised from buyers and the amount that can be realised by selling unsold inventory and by selling additional floor area ratio, say experts. "If the financier of a real estate project decides to bring in a development manager, the tasks cut out for him include dealing with investors stuck in the project, resolving issues with existing owners and taking the project forward after convincing customers that the project will be completed," says Vineet Relia, Managing Director of SARE Homes.
A development manager is like a merchant banker who works for a fee. This model can be used for both greenfield (new) and brownfield (old) projects. In case of a brownfield project, the incoming developer takes on the responsibility of customer sales and project execution.
Some realtors are even open to making use of this opportunity. "We are open to executing projects that have been left unfinished midway but will get into them only after extra due diligence as third party interest has already been created in such projects," says JC Sharma, Vice-Chairman and Managing Director, Sobha Group.
But all companies may not want to associate with developers who have delayed projects. The readiness of a development manager to take up a project will depend on the degree of mess the local builder is in lest it spoils the branded developer’s name.
Over the last few months, developers of companies including Unitech and Casa Grande have been arrested for failing to hand over possession of homes in their projects despite taking money from homebuyers.
Jaypee Group this week claimed it will restart construction at its mammoth Wish Town project in Noida by next week as it has received Rs 1,800 crore in working capital from banks.
The working capital will help meet the immediate funding requirements to start construction. And once work starts, money from homebuyers will pour in as they are tied to a construction-linked building plan. The homebuyers' contribution still due is Rs 7,000 crore, the company said.