The IL&FS induced NBFC crisis has led to a credit crunch in real estate sector. The sector is already facing a slowdown since demonetization as the influx of black money halted. In what may be received as a welcome step by distraught homebuyers, to complete the pending projects in the real estate sector, newly appointed finance minister Nirmala Sitharaman may set up a stress fund worth 10,000 crore rupees. The announcement for the same could be made in the first budget of second Modi government which is to be presented on July 5, 2019.
Homebuyers are facing serious problems as they do not receive possession of properties due to non-completion of real estate projects. A middle class home buyer invests his/her lifetime’s savings to purchase a flat but possession of the flat is delayed for prolonged periods due non-completion of projects which get stuck in legal troubles and hence leaving the buyer stranded. Thousands of such cases in India have surfaced in the last decade and there is a strong need that this issue be addressed by the government.
A body of creditors gave a letter to the finance minister and requested an amendment to the Insolvency and Bankruptcy Code (IBC) categorising homebuyers as “primary secured creditors” instead of “unsecured creditors”, which puts them at a disadvantage if a real estate company is getting dissolved.
“We suggest the government should immediately, either through the Finance Bill or otherwise, move an amendment to the Insolvency and Bankruptcy Code, providing for homebuyers to be made ‘primary secured creditors’,” said Forum for People’s Collective Efforts (FPCE).
Primary secured creditors have the first right on the assets of a real estate company once it enters legal proceedings under the IBC in the case of bankruptcy. This would place the deceived homebuyers among banks and other financial institutions which provide secured loans to realtors.
After the amendment, the homebuyers who had given money to builders in advance will be considered as financial creditors and will be given priority in recovering their dues from the bankrupt companies. Earlier the homebuyers, many of whom used to pay in advance to builders to book their homes were not considered as financial creditors like banks and other lending institutions. Therefore, despite the fact that many of the building projects were majorly funded by the homebuyers’ money, they found no place in the resolution process if the project was abandoned.
Homebuyers in many newly built cities like Noida, Greater Noida and Gurgaon, Navi Mumbai have faced tremendous hardship because the existing laws were tilted towards the builder rather than the homebuyer. They paid in advance to the builders to buy their dream homes because builders promised that they will give possession within months.
Everyone wants to have their own home but the hurry to fulfill their dreams for a good home and anticipation of prices sky-rocketing in time, people readily pay the builders without evaluating the project closely. After receiving the money, builders delay possession of flats for years until they go bankrupt and homebuyers face severe hardships in the hope of recovering their hard-earned money. Jaypee Group did not hand over possession to the apartments for many years as work was still incomplete. The people suffered and there was no strong law to punish the builders, despite there being many cases of Dharna, hartals and even suicides by people as they did not have a home even after paying the full amount.
This set up of fund for completion of projects and amendment to IBC to treat the homebuyers and creditors will be a huge relief for thousands of middle class citizens who have invested large sums of money in real estate with the dream of having a permanent home.