While speaking at NAREDCO’s national real estate convention in Delhi, Rajnish Kumar - MD (NBG), State Bank of India said that the rights of homebuyers and lenders of stalled realty projects of developers being dealt under the Insolvency and Bankruptcy Code need to be treated at par.
“Both lenders and homebuyers will have to bear losses in bankruptcy cases on a pari passu basis; only one player cannot take the losses. Both homebuyers and lenders need to be kept on equal footing. Lenders also need to remember that homebuyers’ rights cannot be denied,” Kumar said.
Kumar’s remark comes in the backdrop of the Jaypee Infratech’s ongoing insolvency case in the National Company Law Tribunal (NCLT), wherein homebuyers are seeking at par status with the secured lenders of the company.
In a residential real estate project, developer usually infuses his capital and that is treated as equity. In addition to this, homebuyers’ advances and lenders money is utilized to complete the project and this falls under the category of loans and advances.
“Implementation of Real Estate (Regulation and Development) Act, 2016 and the Insolvency and Bankruptcy Code have reduced lenders’ risks making lending affordable,” he said.
According to him, homebuyers need to lower their risk by purchasing ready-to-move-in apartments than an under-construction flat. Risk-reward ratio was remained in favor of homebuyers until 2013, but this is not a case right now and would not be over the next couple of years.
“If there are ready to move in homes available, why do homebuyers need to buy into an under-construction project that runs a key risk of construction? If they are not investors and do not have the wherewithal to undertake a due-diligence of the project, it’s better to look for a ready flat,” Kumar suggested.
In addition to homebuyers, other stakeholders in real estate including the developer and the government also need to lower their return expectation from a real estate project, he said while highlighting stamp duty on property transactions hovering around 8% in some regions of the country.
