Changes in the insolvency law and formulating a scheme offering subsidised interest rates are among the several measures suggested by an expert panel to the Centre for reviving stalled real estate projects in the country.
The 14-member panel led by former NITI Aayog chief Amitabh Kant Report examined the issues related to Legacy Stalled Real Estate Projects said to encourage financial institutions to fund stalled projects, a scheme offering subsidised interest rates, similar to MSME, is recommended.
“Such a scheme would reduce perceived risk, stimulate financial support and lead projects to completion. Additionally, the Central Government may consider a guarantee fund similar to MSME for such finances. The MoHUA (Ministry of Housing and Urban Affairs) will prepare a detailed scheme and send it to the Ministry of Finance, in this regard,” the report stated.
The committee observed that the steps to improve the Internal Rate of Return of these projects would attract more funding and judicial interventions such as Insolvency and Bankruptcy Code should be used only as a last resort.
To alleviate financial stress caused by extraordinary circumstances, the committee also suggested suspending interest and penalties due to events like the Covid pandemic (April 1, 2020, to March 31, 2022).
The state governments could examine and provide further zero periods based on the local conditions and circumstances, it recommended. For harnessing additional funds to ensure project completion, the committee suggested allowing developers to induct co-developers, either for entire projects or specific parts thereof without any permission from Noida and Greater Noida and land-owning authorities.
However, land authorities would be informed of such inductions. This will foster collaborative efforts and expedite completion times, the report stated. It proposed a flexible policy that allows for a partial surrender of land.
This will give developers a greater degree of flexibility to adjust their commitments based on their operational capabilities. All dues on the surrendered land will be waived, the committee said in the report.
“No penalty/extra interest/extra cost will be charged from homebuyers in projects where state government’s rehabilitation package concessions have been availed,” the report said.
If a project has excess land, it can provide immediate resources for construction. This land could be used for shopping centres and other such uses. Land authorities should permit this on a payment basis, the panel said.
This optimisation can provide financial relief and expedite project completion, it said, adding that permission to mortgage should be given by land authorities without insisting upon 100 per cent clearance of dues so that builders can mobilise resources for completion of projects and payment of dues.
The committee recommended that developers pay 25 per cent of the balance due to the authority after the concessions within 60 days as a measure of commitment. In the report, the panel said that it believes this model package can be particularly beneficial for regions like Noida and Greater Noida and “we encourage all other state governments to consider similar adaptations. Banks/Financers should be permitted to finance fresh housing loans for new buyers who purchase unsold inventory of these projects. MoHUA will send a detailed proposal on this subject to the Department of Financial Services.”
