A look at what ails the project and the mitigation plan proposed by the HARERA-appointed consultant
October 25 and 28 are two dates that have been marked on the calendar by Sachin Mehta and about 2,000 other families. On October 25, their RWAs will vote on a resolution plan for SARE Homes, their stuck housing project in Gurgaon. Three days later, the Haryana Real Estate Regulatory Authority (HARERA) will hold a hearing on the matter and review the RWAs’ decision.
Mehta had booked an apartment with SARE Homes in Gurgaon way back in 2009. When he finally received possession of his unit in 2014, after a delay of almost two years, it was far from complete. There was no electricity connection, the basement was non-operational, there was no boundary wall and there was no main gate.
Problems persist to this day. The only difference being that instead of one phase there are now five phases. There are 828 units in Phase 1 and 2 and 825 in Phase 3. Phase 4 has 527 units, while Phase 5 comprises 227 units.
While the first and second phases have more or less been delivered, phases three and four are partly complete. Phase 3 has 15 towers and occupation certificates have been received only for five, with about 215 families residing in these towers.
The 2,000 or so buyers in the overall project have knocked on the doors of every legal forum – the National Company Law Tribunal (NCLT), National Consumer Disputes Redressal Commission of India (NCDRC) and now the Haryana Real Estate Regulatory Authority (HARERA).
Will Mehta and thousands of others who booked units in the project finally see it completed? Will many others who still have not received possession be able to move in? Does the order passed by HARERA on October 7 offer these buyers a ray of hope?
Putting homebuyers in charge
In a first in Haryana, HARERA had issued a preliminary injunction allowing homebuyers under the Association of Allottees (AOA) to take over the SARE Homes project in Sector 92. The regulator passed the warrant based on a mitigation plan submitted by the project’s monitoring consultant, Vineet Relia, a former managing director of SARE Homes.
The monitoring consultant was appointed by the Authority in January to assist it in the absence of any directors from the parent company. Relia has submitted a status report for each of the five phases and his mitigation plan has been shared with the RWAs.
According to the HARERA order, the AOA has to approve the plan and directly supervise the construction and completion of the project. It also indicated that all future claims and financing will first be used to complete the project and that creditors will have a right to recover their money only after completion of the project.
The entire project requires about Rs 130 crore for completion and has Rs 265 crore of receivables pending from buyers in Phases 3, 4 and 5.
- The total amount required to complete Phase 3 is around Rs 12 crore and receivables from homebuyers are around Rs 25 crore.
- For Phase 4, the total expenditure is around Rs 80 crore and the receivables from buyers are around Rs 140 crore.
- For phase 5, the amount required for completion is Rs 60 crore and the receivables from buyers are around Rs 100 crore.
What Relia’s mitigation plan proposes
The mitigation plan recommends that SARE Gurugram Pvt Ltd apply to the Registrar of Companies (ROC) for appointment of directors for its functioning.
“Once that is done the licenses can be renewed as there is adequate money in the bank guarantees. But the Authority can renew it provided there are directors in place,” a source said.
The mitigation plan has also proposed that priority funding of Rs 100 crore be infused into the project. “For seeking SWAMIH funding, directors need to be appointed, matters concerning personal guarantees and disputes with all customers have to be resolved,” the source said.
According to Relia’s plan, once construction commences, a construction committee has to be formed comprising four members – two from the association, the monitoring consultant and one engineer from HARERA.
Unsold inventory too will have to be sold to generate funding. The delay penalty due to buyers will be paid from the surplus post completion of the project, the plan states.
As per the plan, the RWAs will take over the individual phases and the federation, comprising the five RWA heads, will take over the complete project and the common amenities.
The October 7 HARERA order
Under the law, a RERA authority can take over an unfinished realty project if it is 80 percent complete. It can act as a facilitator and work with the committee of homebuyers to complete the project under Section 8 of RERA.
Section 8 of the Act empowers authorities to hand over the completion task to a buyers' association.
In its order on October 7, the Haryana Rera Authority directed RWAs to conduct a meeting of all their members to discuss and arrive at a consensus on the mitigation plan submitted by Relia and furnish an undertaking to the effect that they are ready to take possession of the flats on an ‘as is where is’ basis.
The RWAs are expected to hold their general body meetings and reach a consensus by October 25.
“The mitigation plan submitted by the monitoring consultant is to be discussed and finalised in the general body meetings to be held until October 25. Only after it is passed will HARERA take a final call on handing over the project to the homebuyers on the next date of hearing on October 28,” explains Praveen Malik, RWA President, SARE Homes.
To conduct the meeting, a committee has to be constituted comprising the presidents of the five RWAs, the monitoring consultant, one person from the allottees and one representative from the authority.
“The challenge is that none of the last three phases – 3, 4 and 5 — have 51 percent majority in terms of membership. The consent of 51 percent of members in each of these three associations is required for the plan to be cleared. Only Phase 1 and Phase 2 have elected bodies,” said Malik.
The biggest challenge faced by the completed projects in Phase 1 and Phase 2 is that common amenities such as electricity and water connection, sewerage system, boundary walls, and the main gate are all incomplete. Around Rs 1.37 crore is due to the electricity department as the builder has not submitted the amount collected by buyers through a prepaid meter system, he said.
“The first two phases are at the mercy of the residents of phase 3, 4 and 5 as the remaining amount is to be paid by them to the builder for completion of the project,” said Malik.
Anckur Srivasttava of GenReal Advisers is of the opinion that while the mitigation plan is well thought out, all the stakeholders need to be aligned. All the associations need to be on the same page in order to get a majority vote to enable them to take over the completion of the project.
While a commitment has been received from most homebuyers, some investor buyers are not keen on a settlement as prices in the secondary market have crashed,” the source cited above told Moneycontrol.
There are regulatory challenges, too. Project licenses have to be renewed and that cannot be done in the absence of active directors.
Another issue that had cropped up was the appointment of Vineet Relia by HARERA as a monitoring consultant in January. “We had initially raised concerns over the matter to HARERA. It had said that in the absence of any promoter, Relia was the only company insider and could act as a facilitator. However, on our plea, HARERA appointed a forensic auditor, Sanjay Manisha & Co, above him,” he told Moneycontrol.
The mitigation plan submitted by Relia has been reviewed and scrutinised by the auditor firm.
If the resolution plan is successfully executed, it will set a very positive precedent for many similar distressed brownfield projects, Srivasttava added.
The SARE Homes backstory
For the uninitiated, South Asian Real Estate (India) Pvt Ltd, was a unique real estate firm floated by an international fund that acted as a developer and was run by professional managers. It was promoted by London-based global asset and real estate management firm Duet Group.
Duet raised over Rs 1,400 crore in 2006 through equity issuance in SARE Public Company (Cyprus). Of this, about Rs 1,000 crore was invested in the Indian firm, SARE Homes, as foreign direct investment.
This was initially incorporated in August 2006 as Ramprastha Sare Realty Pvt. Ltd as the land belonged to Ramprastha Group. Initially, there were three shareholders with 5,000 shares each. They were Sandeep Yadav, Arvind Walia and Balwant Chaudhary Singh.
In 2007, the joint venture acquired approximately 152 acres of land by way of a sale deed and development rights. In 2007, a development rights agreement was executed in October between S.A. Infracon Pvt Ltd, others and Ramprastha Sare Realty Pvt. Ltd with respect to 48 acres.
In 2009, licenses were granted to SA Infracon Pvt Ld and others for development of group housing. Initially 800 flats were launched. Soon after, both the JV partners decided to split the land as part of a settlement and SARE received two land parcels of 48 acres and 17 acres. The company was renamed in October 2017 as SARE Gurugram Pvt Ltd.
With the real estate sector slowing down, not to mention the liquidity crunch, projects by the company were also impacted and construction came to a halt. Interestingly, Duet is not on the board of SARE Homes. Some of the lenders include KKR India Financial Services, Altico Capital and Edelweiss NSE.