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According to the latest data from the Insolvency & Bankruptcy Board of India (IBBI), a total of 6,571 companies from various sectors were brought into administration until the end of March this year. Out of these cases, 1,380 companies (approximately 21%) were from the real estate sector. Interestingly, 854 of these real estate companies, accounting for nearly 62%, have successfully undergone a resolution plan since the implementation of the Insolvency & Bankruptcy Code (IBC) in 2016.
Resolving insolvency and bankruptcy issues in the real estate sector presents unique challenges compared to other sectors, primarily due to the involvement of homebuyers as operational creditors. Taking into account these distinct factors, the achieved numbers need to be carefully analyzed. Experts suggest that a customized code tailored to the real estate sector would facilitate faster resolution of these issues. Jaxay Shah, former president of CREDAI, emphasized the importance of such a customized code.
Recent examples further illustrate the growing trend of buyers and investors seeking opportunities to acquire bankrupt real estate firms through the insolvency resolution process. By acquiring these distressed companies, buyers and investors aim to turn them around and generate profits. The revival plans of Experion Developers and Sare Gurugram, approved by the National Company Law Tribunal (NCLT) on May 17 and April 24 respectively, serve as notable instances of this trend.
The appeal of bankrupt realty firms lies in the scarcity of prime land parcels in metro cities, where most stressed real estate developers facing insolvency resolution operate. Bidders are attracted to these companies due to the opportunity to take over assets at discounted prices. NPS Chawla, co-founder of Aekom Legal, highlighted that despite the challenges faced by real estate companies, such as project delays, lack of approvals, cost overruns, and funding issues, many investors are willing to invest in these projects, anticipating future upside.
In some cases, allottees themselves have joined forces and are completing projects under the pool and build mechanism in projects where companies have gone into insolvency. Although 164 out of the 678 companies rescued through revival plans were from the real estate and construction sector, legal experts acknowledge that complications persist in such cases.
As the demand for residential and commercial properties continues to rise, strategic buyers and investors are actively seeking opportunities among real estate companies with large land parcels currently undergoing bankruptcy administration due to loan defaults. This trend is particularly prevalent in cities where the potential for future returns is promising.
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