The Amitabh Kant-led committee set up by the housing ministry to look into the issue of legacy stressed projects has recommended de-linking registration of projects from the recovery of dues from builders. It has also said that the primary reason for stress in real estate projects is lack of financial viability and that judicial interventions such as the insolvency code should be used as the last resort.
The 14-member committee that was put in place in March this year by the Ministry of Housing and Urban Affairs (MoHUA) has made a seven-point recommendation that includes mandatory registration of projects under the Real Estate Regulatory Authority (RERA), execution of registration or sub-lease deeds for all occupied units, occupancy of all substantially completed projects and financing of all stalled projects by a government-backed fund. The panel presented the committee's report to Union Housing and Urban Affairs Minister Hardeep Singh Puri earlier this week. The expert committee held five meetings in April, May, June, and July in which presentations and inputs were sought from state authorities, regulators, real estate developers, homebuyers and financiers.
The Indian Banks’ Association (IBA) has estimated that there are 4.12 lakh stressed dwelling units involving ₹4.08 lakh crore. Of this, about 2.40 lakh stressed dwelling units are situated in the National Capital Region (NCR). If 75 percent of these stressed units are resolved, it will add about three lakh units to the housing sector. The resolution of these stressed units will assist the middle and lower middle class in getting houses for which they have already paid a substantial amount. In addition, it will provide a major impetus to economic activity and growth, the Report of the Expert Committee on Rehabilitation of Legacy Stalled Real Estate Projects, said.
The Committee concluded that the primary reason for stress in real estate projects is lack of financial viability of these projects. This has resulted in cost overruns, project and time delays. The Committee observed that the steps to improve the Internal Rate of Return (IRR) of these projects would attract more funding and judicial interventions such as Insolvency & Bankruptcy Code (IBC) should be used only as a last resort. The project resolution should be a win-win situation for all stakeholders.
Registration of housing units should not be contingent on the recovery of dues from the builders
The Committee examined the status of the pending registration/sub-lease deeds and found that despite completion of project, this delay was largely on account of builders defaulting on their dues to the relevant authorities which in turn adversely affected genuine home buyers, “who have fulfilled their obligations but are yet to receive their legitimate rights”.
It has recommended that registration and execution of subleases should be carried out in favour of these rightful home buyers. “This should not be contingent on the recovery of dues from the builders. This would benefit approximately about one lakh home buyers,” it said.
It has also suggested that “rigorous and strict proceedings” should be initiated to recover the outstanding dues from the defaulting builders. This should be done by invoking Revenue Recovery Act/Provision of the Industrial Authority Act and all other provisions of Law.
“This dual-pronged approach will ensure that genuine home buyers are not penalised for the shortcomings of the builders while holding the latter accountable for their financial obligations,” it said.
In cases where homebuyers are expected to remit outstanding dues to the builders, the Committee has suggested that RERA should directly collect these payments from homebuyers, bypassing the builders. This amount can be paid based on the waterfall mechanism wherein the revenues will first be used to complete the construction.
The Committee observed that this approach will be doubly beneficial. It will not only expedite the registration /sublease process for homebuyers but also ensure that creditors and authorities are able to secure some revenue from these transactions. It will also enable homebuyers to gain rightful possession of their houses, it said in its report.
Recommends possession of all substantially completed projects
The Committee observed that there have been instances where project construction is substantially completed but possession has not been given on account of non-availability of No Objection Certificates (NOCs), completion certificates, and similar necessary approvals. The Committee has recommended that RERA should identify such projects on a crash basis for resolution within a period of 30 days.
It has also recommended that buyers should be given the option to take possession of these units on ‘as is where is’ basis. The allottees could get the interiors of their home completed with the balance funds that they have not paid. Once identified, efforts should be undertaken to expedite the clearance process including Occupation and Completion certificates for these projects, ensuring that the necessary approvals are granted promptly and efficiently. This should not be contingent on the recovery of dues from the builders. This process should be completed within six months to avoid any further delays. Once the units are handed over, registration/sub-lease should be done.
It has suggested that rigorous proceedings should be initiated to recover the outstanding dues from the defaulting builders under the provisions of Revenue Recovery Act, the Industrial Authority Act, and all other provisions of Law. This recommendation aims to facilitate the smooth handover of properties to their rightful owners without unnecessary hold-ups due to administrative bottlenecks.
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