Rera extension may save stalled housing projects from insolvency risk

The Ministry of Housing and Urban Affairs’ (MoHUA’s) advisory allowing state Real Estate Regulatory Agencies (Reras) to extend timelines for registration of realty projects by four months may help save buyers from possible insolvency risks.

 

“For homebuyers, the main impact is that developers will not be treated as ‘in-default’ for this four-month period if the extension is granted. That means the window during which buyers can claim delay compensation is reduced for the extended period. At the same time, the move can help prevent a wave of stalled projects, which indirectly protects buyers from insolvency risk,” said Alay Razvi, managing partner at legal firm Accord Juris.

 

The advisory issued by MoHUA is different from a directive, which means that project developers under Reras will have to adhere to the directions issued by the respective authorities. While the decision is intended to provide additional time for project completion, legal experts said that it should not be construed as permitting developers to increase prices for units already sold under registered agreements.

 

Existing homebuyers continue to be protected by the terms of their agreements and the safeguards under Rera.

 

“Unless the agreement specifically provides for a permissible price adjustment or the increase is due to statutory levies, developers cannot pass on higher construction costs to existing purchasers,” said Vaibhav Suri, partner at law firm Cyril Amarchand Mangaldas.

 

This comes after MoHUA clarified last week that the government has classified the West Asia conflict as war for the purpose of invocation of force majeure clauses.

 

According to market watchers, developers have been accounting for a four to six month delay in project completion timelines, depending on the stage of construction and the availability of key materials and equipment.

 

Completions have been stalled due to price hikes caused by supply chain challenges and sourcing delays.

 

Realtors add that there has been a 15-30 per cent rise in construction costs since the start of the conflict in February this year, with labour costs seeing a 15-20 per cent hike.

 

“The cost of constructing the buildings has gone up due to the fact that there have been increases in the prices of raw materials like steel, cement, aluminium, fuel, imported materials, and even in logistic charges,” said Ashish Bhutani, chief executive officer (CEO) at Noida-based Bhutani Infra.

 

While prices of a few commodities have eased slightly in recent weeks, the overall cost environment remains well above pre-February levels.

 

“The extension gives them the flexibility to complete projects without facing regulatory penalties for circumstances they did not create,” said Parveen Jain, president of the National Real Estate Development Council (Naredco).

 

He added that the most significant use of force majeure provisions in recent years was during the Covid-19 pandemic, when construction activity had come to a near standstill.

 

While the current situation is different, Jain said that the sector is once again facing exceptional challenges due to global supply chain disruptions, rising input costs, and delays in material availability.

 

“These issues have affected developers across the board, from affordable housing to premium and luxury projects,” he said.

 

Ashok Singh Jaunapuria, managing director (MD) and CEO at Gurugram-based SS Group, said that developers are now prioritising minimising disruptions, maintaining construction momentum, and delivering projects on time while upholding customer trust.

 

Brick by brick

• The decision is intended to provide additional time for project completion
• Legal experts said that it should not be construed as permitting developers to increase prices for units already sold
• This comes afterMoHUA clarified last week that the government has classified the West Asia conflict as war for the purpose of invocation of force majeure clauses
• Completions have been stalled due to price hikes