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The government is considering a proposal that could bring relief to homebuyers who have invested in completed projects where the developer is undergoing insolvency resolution. The suggestion, included in proposed amendments to the insolvency code, aims to enable the unhindered registration of flats in such projects. This move is expected to address the concerns of thousands of homebuyers who fear losing their investments when builders fail.
In addition to facilitating flat registration, the proposal may allow the National Company Law Tribunal (NCLT) to seek inputs from the relevant Real Estate Regulatory Authority (RERA). This is particularly important due to the complexities involved in resolving bankruptcy cases in the housing sector. Homebuyers, in these cases, are also considered financial creditors under the Insolvency and Bankruptcy Code (IBC). The involvement of RERA could provide valuable insights and expertise, helping to navigate the intricacies of bankruptcy resolution in the real estate industry.
The current scenario often discourages homebuyers from completing their payments and taking possession of the flats once a developer goes under. However, the proposed amendment seeks to change this by lifting the moratorium on flat registrations and treating them as stocks or goods of a company, rather than assets. This change in approach could motivate homebuyers to fulfil their financial obligations and finally take possession of their properties.
The significance of this proposal becomes apparent when considering the high number of stuck or delayed housing projects in the Noida and Greater Noida areas of the National Capital Region alone. With over 100 such projects, the urgency to address the challenges faced by homebuyers becomes evident.
Experts in the field acknowledge that the current IBC rules do not explicitly prevent resolution professionals from handing over flats to buyers during the resolution process, provided approval is obtained from the committee of creditors. However, professionals often exercise caution in these situations. By introducing an explicit provision in the IBC that allows for flat transfer and registration, the discretion of resolution professionals could be reduced, offering more clarity and certainty to homebuyers.
The proposal aligns with the corporate affairs ministry's earlier invitation for suggestions on a special regime for the real estate sector. The ministry proposed that the insolvency process be restricted to insolvent projects and not extended to the entire company, including solvent projects. This targeted approach could help address the specific issues faced by the real estate sector while safeguarding the interests of homebuyers.
According to a study conducted by Grant Thornton Bharat, real estate constitutes nearly 23% of the total insolvency cases filed, yet only about 13% of these cases have been resolved. This emphasizes the need for effective measures to expedite the resolution process in the real estate sector.
Legal professionals and industry experts have voiced their support for the proposed move to transfer ownership or initiate registration of flats. They highlight the benefits it would bring to homebuyers by providing relief and preventing a sharp erosion in the value of insolvent real estate companies. The proposal is seen as a means to improve the cash flow of these companies and facilitate their recovery.
Considering the unique complexities associated with resolving stressed real estate firms, it is suggested that RERA, as the regulatory authority or a competent representative body, could play a crucial role in determining the feasibility and viability of resolution plans on behalf of the homebuyers. This would ensure that the best interests of the homebuyers are safeguarded during the resolution process.
In conclusion, the proposed amendments to the insolvency code aim to address the challenges faced by homebuyers in completed projects where developers are undergoing insolvency resolution. By allowing unhindered registration of flats and involving RERA in the resolution process, the government seeks to provide relief to homebuyers, improve cash flow for insolvent real estate companies, and facilitate a more efficient resolution of cases in the housing sector.
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