In what seems to be a sigh of relief to home buyers, the government of India has amended the Insolvency and Bankruptcy Code (IBC) 2016 to grant the status of a “financial creditor” to a home buyer. The ordinance also now has the assent of the President of India.
According to IBC ordinance, home buyers now stand on the same footing as any other stakeholder participating in a real estate project. The ordinance also grants them due representation in the committee of creditors, Live Mint reported. The IBC amendment has been made on the belief that money is raised from home buyers as a means to finance construction, and thus they should be treated as any other financial creditor.
The move is expected to help borrowers facing hardships due to stalled real estate projects in India. As per a recent report, about 20-30% of projects face delay due to various reasons, the most common of which is a debt trap that a developer finds himself in. In fact, at present, there are 5,75,900 delayed real estate projects amounting to a whopping Rs 4.64 lakh crore.
A stalled project is a nightmare for any home buyer as they usually invest a substantial portion of their savings to make a down payment for the property. Delay in the project means they have to still pay an EMI on the loan and continue to pay rent in the current place of stay.
However, things are expected to change for good after the new IBC amendment. After having attained the status of a financial creditor, home buyers have now been granted the right to invoke Section 7 of the IBC against an errant developer.
Noteworthy here is that Section 7 allows a person to file an application seeking resolution for insolvency under the corporate insolvency resolution process (CIRP). Also, as a result of this amendment, home buyers can also expect fast-tracking of pending court cases against leading real estate groups.
While the new IBC ordinance will benefit home buyers, big promoters will not really lose out. Since the promoter is not a wilful defaulter, he will still be given a fair chance of resolution rather than liquidation under CIRP.
However, it seems that the industry is expected to be benefitted on the whole by bringing about greater transparency in dealings and weeding out fly-by-night operators.