Centre drafts blueprint for systemic reforms to rescue stressed housing projects: Report

The upcoming panel will also explore structural reforms such as strengthening NCLT's judicial capacity, setting up dedicated insolvency benches for real estate cases, enabling project-wise resolution, and ensuring early registration of projects with local authorities to safeguard homebuyers' interests

The Ministry of Corporate Affairs (MCA) is preparing to set up a government committee to propose policy reforms aimed at accelerating the completion of stalled real estate projects, reviving insolvent developers, and improving debt resolution efficiency, The Mint reported. The ministry has begun discussions with other ministries and regulators to create a blueprint of "commercially viable systemic reforms" focused on addressing distress across the real estate sector.

Two people familiar with the development told The Mint that the panel will include representatives from multiple ministries and regulatory agencies. Its objective is to restore public trust in the housing market, where more than Rs 4 trillion in investments were stuck as of July 2023, covering around 4.12 lakh stressed housing units, according to an expert committee led by former G20 Sherpa Amitabh Kant. Over half of these stalled homes-about 2.4 lakh-are located in the National Capital Region.

The proposed committee will be separate from the one recently formed by the Insolvency and Bankruptcy Board of India (IBBI) to explore project-wise insolvency resolutions instead of the existing company-level approach, The Mint noted in an earlier report on November 3.

Members of the new committee will include officials from the ministries of law and housing and urban affairs, think tank National Institute of Urban Affairs, IBBI, and the Department of Financial Services. One person cited by The Mint said the panel's formalities are underway, with an initial inter-ministerial meeting held last week to discuss sectoral distress. The committee is expected to be finalized shortly and deliver its recommendations within six months.

The committee is also expected to assess whether stalled real estate projects undergoing insolvency can be brought under the ambit of the Special Window for Affordable and Mid-Income Housing (Swamih) Fund, which was launched in 2019 to provide last-mile financing for incomplete affordable housing projects. In the FY26 Budget, Finance and Corporate Affairs Minister Nirmala Sitharaman announced an expanded version of the scheme, allocating Rs 15,000 crore to complete an additional 100,000 homes. This is in addition to the 50,000 homes already completed and another 40,000 due for completion by the end of 2025.

Data from IBBI cited by The Mint shows that real estate and construction sectors together account for about one-third of the 8,500 insolvency cases admitted to the National Company Law Tribunal (NCLT) since the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016. Of the 1,258 resolved cases across sectors, 17% involve real estate companies.

The upcoming panel will also explore structural reforms such as strengthening NCLT's judicial capacity, setting up dedicated insolvency benches for real estate cases, enabling project-wise resolution, and ensuring early registration of projects with local authorities to safeguard homebuyers' interests.

Experts told The Mint that better coordination between IBC and the Real Estate (Regulatory and Development) Act (RERA) could significantly improve resolution outcomes. Ashok Haldia, who chaired an expert group on real estate debt resolution under the Indian Institute of Insolvency Professionals of ICAI, suggested that special concessions-such as additional floor area ratio or floor space index-could help raise funds for completing delayed projects.

Haldia also emphasised that lenders should not have precedence over homebuyers simply due to collateralized security. He added that banks must be held accountable for inadequate due diligence and project monitoring, and homebuyers should receive repayment moratoriums in such cases.

Not all stakeholders, however, agree on the concept of project-specific insolvency resolution. Abhay Upadhyay, president of the Forum for People's Collective Efforts and member of RERA's Central Advisory Council, told The Mint that project-level insolvency might allow developers to sidestep responsibility by isolating unviable projects instead of redirecting revenues from profitable ones. He also cautioned that expanding the Swamih Fund to include insolvent projects would dilute its original intent, as the fund was designed for financially viable developments needing last-mile support.

Haldia further recommended that state development bodies like the Delhi Development Authority (DDA) and New Okhla Industrial Development Authority (Noida Authority) refrain from canceling leases or approvals during insolvency proceedings, suggesting instead that they file creditor claims.

The MCA's renewed focus on real estate insolvency reform follows a Supreme Court directive issued in Mansi Brar Fernandes vs. Shubha Sharma and Others, which highlighted the need for stronger protection mechanisms for homebuyers in distressed projects, The Mint reported.

Email queries sent by The Mint on November 6 to the ministries of corporate affairs, law, and housing and urban affairs, as well as to IBBI, seeking official comments, remained unanswered at the time of publication.