Real estate developers have approached the Uttar Pradesh government seeking relief on the issue of payment of pending land dues, asking the state government to adopt a one-time settlement scheme (OTS) on the lines of the one in Haryana to help them to clear their liabilities and keep projects viable.
The Uttar Pradesh chapter of the National Real Estate Development Council (NAREDCO) has written to UP Chief Secretary Durga Shanker Mishra requesting him to consider developers’ inability in clearing the dues in the current scenario and suggested that the state accept the OTS proposal by adopting either the State Bank of India’s MCLR or marginal cost of funds-based lending rate (simple interest) from the date of allotment, or adopt Haryana’s “Samadhan se Vikas” policy, and then reschedule the outstanding amount thus worked out.
The developers’ body also noted that the recently launched policy to reschedule payments will in its current form not help builders and homebuyers as their representations for waiver or reduction of interest and penal interest on land premium have not been considered.
The Supreme Court had on November 7, 2022, quashed its 2020 order and directed builders to pay land dues as per the terms and conditions agreed upon between them and the respective authorities.
The apex court in its previous order of June 2020 had directed the authorities to cap the rate of interest at 8 percent for the delay in payment of land dues. According to the terms of the agreements between builders and the authorities, the rate of interest for delayed payment was pegged at 15-23 percent.
NAREDCO in its letter to the chief secretary noted that as a result of the recent apex court order, the land dues of developers to the authorities have tripled due to adding penal interest and compounding every six months.
Developers are not able to clear the claimed amounts and obtain the required approvals like plan approval, revision, completion, etc, and this would result in the projects coming to a “complete standstill” and the homebuyers would not get possession of their booked units, it argued.
NAREDCO claimed that approximately 2.5 lakh homebuyers are awaiting delivery of their booked flats in projects in Noida, Greater Noida and areas adjoining the Yamuna Expressway.
It is estimated that a total of Rs 40,000 crore is due to the Noida, Greater Noida and Yamuna Expressway authorities including premium, interest and penal interest against allotted plots on which real estate projects are in different stages of execution.
As a consequence of the Supreme Court order, none of the developers is in a position to clear the huge liability of land dues, and the authorities will lose their receivables which would be difficult to recover even through the recovery processes, NAREDCO said.
“The government should work out the land dues at interest rate of SBI MCLR from the date of allotment at simple interest rate and not compound interest, and reschedule the outstanding amount thus arrived at as per the reschedulement policy. Or the government should adopt the Haryana OTS policy ‘Samadhan se Vikas’ requiring the developers to pay 25 percent of interest portion and waiving of 75 percent of the interest portion and then re-schedule the land dues so worked out,” the UP NAREDCO said in the letter.
The developers’ body said that due to the delay in execution of real estate projects, the project accounts of developers with banks and financial institutions have already become non-performing assets. The body said that more and more developers are being placed under corporate insolvency resolution process (CIRP) by the National Company Law Tribunal.
“In none of the CIRP initiated Projects, construction is taking place and the ultimate sufferer would be Home Buyers and Creditors. Since the Noida, Greater Noida and Yamuna Expressway Authorities are classified as ‘Operational Creditor’ by the Supreme Court, even if any resolution scheme is implemented in CIRP, the dues of the Authorities would become zero after considering the ‘Financial Creditors’ on priority,” the NAREDCO letter said.
A large number of banks and financial institutions have invested huge amounts in these real estate projects. In the event the projects getting scrapped or stalled, their investments will be wiped out and the unending process of legal disputes will start in different courts and tribunals, NAREDCO noted.
The Noida, Greater Noida and Yamuna Expressway Industrial Development authorities have recently announced a scheme that would allow defaulting developers of commercial, group housing, sports city and township projects to reschedule payments, with the objective that these projects be completed without further delay and allow developers to obtain part completion certificates and also help to deliver flats to homebuyers.
However, NAREDCO said that the terms and conditions of the policy are so rigid that “none of the developers” can avail of the scheme.
“The Authorities have simply capitalised the current outstanding including land premium, interest, penal interest and farmer compensation, and re-scheduled it for payment of 20% initially and balance 80% in four half-yearly instalments. In this context, we humbly submit that the various representations made by the individual Developers as also through NAREDCO for waiver/reduction of interest and penal interest on land premium, have not been considered,” NAREDCO said in its letter.
It added that under the scheme as it stands, the cost of the land has multiplied compared to the rate at which fresh allotments are being made by these authorities.
“For example, in Sector 94 Noida, the land cost per square metre for the present allottee comes to Rs 3,48,926 per sq. mtr whereas at the same location fresh allotment of plot in the name of M3M has been made by the Authority at Rs 1,60,000 per sq. mtr. in December, 2022, which is 2.18 times less of the effective cost to the earlier allottees,” the developers’ body explained.
It also said that outstanding farmer compensation along with interest has been capitalised for the purpose of re-schedulement.
Stay orders have been issued by the Allahabad High Court in various cases from recovering farmer compensation so this demand should have been kept in abeyance while formulating the re-schedulement policy, NAREDCO said in the letter.
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