Developers brace for another storm as SC gives relief to homebuyers

According to industry sources, the verdict will make things difficult for a host of developers

Facing a slowdown, liquidity crisis, low demand and an all-time low sentiment, the realty sector received another jolt on Friday, when the Supreme Court upheld homebuyers’ status in the Insolvency and Bankruptcy Code (IBC) as financial creditors.

According to industry sources, the verdict — for petitions by as many as 181 builders, including Ireo, the Trump organisation’s partner in India, as well as Parsvnath Developers, Ansal Housing, and Supertech — will make things difficult for a host of developers.

“We believe that within the next three months, a host of major players in the National Capital Region (NCR) will be dragged to court by homebuyers. This is the go-ahead many of them were waiting for. There are many established players whose projects have been delayed by at least three years,” said a senior member of a real estate body in the NCR.

The sources also believe at least 15 major developers, especially in the north, may shut shop within the next 3-4 years.

“Major players that have been trying to raise funds to complete stalled projects have not been able to do so as they have lost confidence. If they are not able to deliver flats over the next one year, they will all be booked under various sections of the Real Estate (Regulation and Development) Act (RERA),” said a prominent developer based in Noida.

Experts believe the apex court judgment is not great news for investors or home buyers, who have initiated IBC against developers seeking to exit investments due to the  condition of the realty market. 

“The stay on National Company Law Tribunal (NCLT) proceedings are to continue till NCLT or National Company Law Appelate Tribunal (NCLAT) decides each petition of home buyers in light of Section 65 of the IBC (malicious proceedings). This adjudication will bring in clarity on the ongoing litigations,” said Abhilash Pillai, Partner, Cyril Amarchand Mangaldas.

“In the scenario of a liquidity crisis, where NBFCs have been impacted, this judgment will set ground to find a remedy to all those projects which have been delayed. 

This decision will allow projects to get to the logical end in terms of completion of projects without getting foreclosed by banks. 

The IBC law is very progressive in nature and it has the potential to restructure the real estate industry,” said Niranjan Hiranandani – national president – National Real Estate Development Council (NAREDCO).