In what could be described as killing two birds with one stone, the Noida and Greater Noida Authorities - which manage the two satellite cities of Delhi - are contemplating introducing a co-developer policy by way of which hundreds of legacy real estate projects that are stalled in the twin cities will get the requisite funds to pay up the pending land costs to the authorities on account of which registries have come to a halt, and stuck projects will finally get completed.
The proposed policy may benefit lakhs of homebuyers who have been waiting to get their flats registered for years. Homebuyers, builders and legal experts say that the move is 'much needed' to resolve homebuyers’ issues but it should be brought in in earnest to ensure that more dues do not pile up, making the projects unviable.
Under the proposed policy that was suggested by the builders’ body Confederation of Real Estate Developers Association of India (CREDAI) to the Uttar Pradesh government, co-developers may be allowed to infuse money into stuck projects and complete them under the provisions of the policy ratified by the two authorities, instead of developers themselves striking co-developing agreements on their own that may not be legally recognised by the authority concerned.
Under the scheme, co-developers will partner with the original developers of stalled projects that are commercially viable and invest funds to complete the projects as well as take the onus for clearing land dues amounting to a collective Rs 39,000 crore that are pending with the authorities.
CREDAI’s proposal
It should be noted that a co-developer policy was introduced in 2017 but it failed to take off. CREDAI had given a presentation before the Uttar Pradesh government recently on how such a policy could help resolve the problems of more than 2 lakh homebuyers.
In its presentation, CREDAI had suggested to the authorities that they acknowledge the new real estate company as a joint venture/joint development agreement/working partner/party with the existing promoter at respective authorities, the Uttar Pradesh Real Estate Regulatory Authority (UPRERA), etc., as it is a mandatory requirement of the new lender.
The body had also suggested extending the registration period of UPRERA to allow more time for construction and completion of the respective project as home loans and construction finance can only be availed with legitimate registration.
It had asked the authorities to ascertain the dues towards various heads under the lease conditions of the said land parcels and provide a confirmation on revision/revalidation of maps subject to regularising the account through reschedulement/restructuring.
It had also sought confirmation on issuance of permission to mortgage to the construction finance lender/home loan lender to the respective projects subject to regularising the account. The authorities have to issue permission to mortgage when developer raise project loans.
The builders’ body had also suggested that the policy consider projects that are under the insolvency process so that corporate resolutions can move faster.
“After receiving their proposal, we decided to work out the idea of allowing co-developers to develop projects that have been left incomplete or have been delayed owing to a funds crisis. We are considering a proposal that would allow a new developer to take over the delayed project if the new developer is willing to pay the land costs owed to us,” Ritu Maheshwari, the chief executive officer of the Noida and Greater Noida Authorities, was quoted as saying.
There are approximately 200 projects that are currently stuck in Noida and Greater Noida.
Gaurav Gupta, secretary of CREDAI’s Delhi-NCR (National Capital Region) chapter, told Moneycontrol that the government should bring about a co-developers policy along with a land dues rationalisation policy.
“Once the land dues policy is finalised, the co-developers should be brought in to infuse the funds. All along the authority should act as an enabler while revalidating maps and providing new timelines and permissions. This is important as until all these formalities are cleared, the funding tap for the project will not open for both the project loan as well as the home loan for buyers,” he explained.
Adding that a co-developer will come into the project only when the receivables are more than the costs incurred to complete the stuck project. Land cost is an important component of project cost and a co-developer will calculate the viability of the project and the total amount that will be received and paid before deciding to complete it.
He also said that the policy should be introduced soon so as to ensure that the authorities’ and banks’ dues do not pile up to such an extent that the projects become unviable.
“If all permissions are renewed, the original promoter may also be given an opportunity to complete the project,” he added.
Amit Modi, director, ABA Corp and president, CREDAI Western UP, said that the proposed scheme is a 'good step' but may work well in cases where the projects are net-worth positive.
Manoj Gaur, chairman at CREDAI National, explained the policy is important as the new/co-developer developer was not being recognised by the authorities earlier.
“Corroboration agreements were not being allowed. The co-developer was not being recognised under the authority’s lease deed and allotment documents. If this policy is introduced, it will be good for stalled projects. At least the projects that have juice left in them will be completed. Having said that, a co-developer will be encouraged to bring in the funds only if his rights are safeguarded,” he added.
Homebuyers’ take
Abhishek Kumar, president of Noida Extension Flat Owner Welfare Association, a homebuyers’ association, said that the proposed policy may benefit a few positive net-worth projects that are stalled. “At the end of the day, it all boils down to trust. If the co-developer who is brought in to complete the project has a good execution track record, homebuyers would be willing to pay up the remaining amount due to them to ensure that funds are available to kick-start the project.”
Legal view
Legal experts, however, say that while the proposed policy is a welcome move, only a few projects may benefit. Also, the co-developer would have to get the consent of two-thirds of the buyers invested in the project as per Real Estate (Regulation and Development) Act (RERA) provisions. Homebuyers should also take into account the changes that may be brought about in the project by the co-developer.
“A co-developer will agree to infuse funding for a stuck project only if there is profit to be made. What about legacy projects that are sold but are stuck? Also, the views of homebuyers should be considered before the policy is finalised,” said Mihir Kumar, an advocate.
If the primary builder fails and has no funds left, will buyers be able to recover their funds from the co-developer? Will he be liable to the buyers for any failure, he asks.
Venkat Rao, founder and managing partner, Intygrat Law Offices LLP, welcomed the move but said that under Section 15 of RERA, in the event of a change in a developer or rights being given to a third party, two things need to happen—you need the consent of two-thirds of the buyers and consent from the authority. “This can be a challenge,” he said.
Section 15 of RERA lays down that “The promoter shall not transfer or assign his majority rights and liabilities in respect of a real estate project to a third party without obtaining prior written consent from two-third allottees, except the promoter, and without the prior written approval of the Authority, provided that such transfer or assignment shall not affect the allotment or sale of the apartments, plots or buildings as the case may be, in the real estate project made by the erstwhile promoter.”
Also, in the event of a particular project getting transferred in favour of a third party, the new developer will have to abide by all that had been promised by the original builder. “What if allottees ask for delay compensation,” he asks.
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