– by Ayush Kumar Singh
The issue of stalled real estate projects in India has been a persistent challenge, adversely affecting the economy and the lives of countless homebuyers. In response, the Ministry of Housing and Urban Affairs (MoHUA) constituted a committee under the chairmanship of Shri Amitabh Kant, G20 Sherpa, to examine the issues holistically and recommend measures to complete these legacy stalled projects. The committee’s report, submitted in July 2023, provides a detailed analysis of the problem and proposes a multi-faceted approach to resolve it. This article delves into the key findings and recommendations of the report, examining their legal and policy implications.
Background and Context
The committee was constituted on 31st March 2023, following deliberations during the third meeting of the Central Advisory Council (CAC) held on 12th April 2022. The committee’s mandate was to examine the issues related to legacy stalled real estate projects and suggest ways to complete these projects in a time-bound manner. The committee held five meetings between April and July 2023, engaging with various stakeholders, including state authorities, regulators, real estate developers, homebuyers, and financiers.
Key Findings
The committee identified several key issues contributing to the stalling of real estate projects:
§ Financial Viability: The primary reason for stress in real estate projects is the lack of financial viability, leading to cost overruns and delays. The committee emphasized the need to improve the Internal Rate of Return (IRR) of these projects to attract funding.
§ Regulatory Challenges: The Real Estate Regulatory Authority (RERA) plays a crucial role in regulating real estate projects. However, the committee noted that delays in obtaining necessary approvals, such as No Objection Certificates (NOCs) and completion certificates, have hindered project completion.
§ Stakeholder Coordination: The divergent interests of various stakeholders, including developers, financiers, and land authorities, have complicated the resolution process. The committee highlighted the need for equitable haircuts by all stakeholders to make projects financially viable.
Recommendations
The committee’s recommendations are categorized under seven heads, each addressing specific aspects of the problem:
I. Mandatory Registrations with RERA
The committee recommended mandatory registration of all real estate projects with RERA to ensure transparency and accountability. RERA registration facilitates project-wise decision-making, systematic record-keeping, and enhances transparency. The committee also recommended the opening of project-wise escrow accounts to manage receipts and payments.
II. Execution of Registration/Sub Lease Deeds for All Occupied Units
The committee highlighted the delay in executing registration/sub-lease deeds due to builders defaulting on their dues. It recommended immediate registration/sub-lease execution in favor of homebuyers, irrespective of the recovery of dues from builders. Simultaneously, strict proceedings should be initiated to recover outstanding dues from defaulting builders.
III. Occupancy/Possession of All Substantially Completed Projects
For projects that are substantially completed but undelivered due to administrative hurdles, the committee recommended identifying such projects on a crash basis and expediting the clearance process. Homebuyers should be given the option to take possession on an “as is where is” basis.
IV. Proposal for State Government’s Rehabilitation Package
The committee proposed a rehabilitation package for financially distressed projects, including the introduction of a “Zero Period” to alleviate financial stress caused by extraordinary circumstances, such as the COVID-19 pandemic. The package also includes measures like interest application based on the Marginal Cost of funds-based Lending Rate (MCLR), inclusion of co-developers, and partial surrender policy.
V. Framework for RERA and Administrator-Led Revival of Projects
For projects where developers fail to complete the project, the committee recommended a RERA-led revival framework. This includes the appointment of a professional administrator, transparent contractor selection, and equitable haircuts by stakeholders.
VI. Financing of Stalled Projects
The committee recommended treating financing for completing stalled projects as priority financing. It suggested subsidized interest rates or guarantee schemes to encourage financial institutions to fund stalled projects. The committee also proposed a waterfall mechanism for revenue utilization, ensuring that construction completion is prioritized.
VII. Use of IBC for Resolving Projects as a Measure of Last Resort
The committee noted that while the Insolvency and Bankruptcy Code (IBC) has resolved some projects, it should be used as a last resort due to the backlog of cases with the National Company Law Tribunal (NCLT). The committee recommended reforms in IBC to better accommodate the complexities of the real estate sector, including project-wise Corporate Insolvency Resolution Process (CIRP) and transfer of ownership/possession to allottees.
Legal and Policy Implications
The committee’s recommendations have significant legal and policy implications:
a. Mandatory RERA registration and the establishment of project-wise escrow accounts will enhance regulatory oversight and ensure transparency in the real estate sector. This aligns with the objectives of the RERA Act, 2016, which aims to protect the interests of homebuyers and promote transparency in real estate transactions.
b. The recommendation for equitable haircuts by all stakeholders, including developers, financiers, and land authorities, underscores the need for coordinated efforts to resolve stalled projects. This approach is consistent with the principles of fairness and equity in insolvency resolution, as highlighted in the Insolvency and Bankruptcy Code (IBC).
c. The proposed rehabilitation package and RERA-led revival framework emphasize the critical role of state governments in resolving stalled projects. State governments will need to enact policies and provide necessary support to ensure the successful implementation of these measures.
d. The committee’s recommendations for reforming IBC to better accommodate real estate projects highlight the need for a sector-specific approach to insolvency resolution. This includes project-wise CIRP and expedited clearances, which will enhance the efficiency of the insolvency resolution process.
The report of the committee on legacy stalled real estate projects provides a comprehensive roadmap for resolving the longstanding issue of stalled projects in India. The recommendations, if implemented effectively, have the potential to restore confidence in the real estate sector, protect the interests of homebuyers, and provide a significant impetus to economic growth.
However, the success of these measures will depend on the coordinated efforts of all stakeholders, including the central and state governments, regulatory authorities, developers, and financiers.
Ref.:
1. Ministry of Housing and Urban Affairs (MoHUA), Government of India. (July, 2023). Report of the Committee to examine the issues related to Legacy Stalled Real Estate Projects.
2. Real Estate (Regulation and Development) Act, 2016.
3. Insolvency and Bankruptcy Code, 2016.
