Panel set up to examine stalled real estate projects submits report: What are its findings and recommendations?

What did the committee find?

The first question before the committee was how many and where are the legacy stalled projects located. In one of its five meetings with stakeholders, the committee was told by a representative of banks, the Indian Banks’ Association chief executive Sunil Mehta, that 60% of the stalled projects had already been bought, with a capital commitment of Rs.1.9 lakh crore. The committee’s report cited the IBA as estimating that 4.12 lakh dwelling units of Rs.4.08 lakh crore were “stressed” and about 2.40 lakh (44%) of these were in the National Capital Region. Another 21% of the units were in the Mumbai Metropolitan Region, it said.

The committee concluded that the main reason for the stress in these projects was the “lack of financial viability”, which had led to cost overruns and time delays. The committee said the way to solve the problem would be to improve the Internal Rate of Return of the projects in order to attract funding.

Judicial interventions, like the use of the Insolvency and Bankruptcy Code, should be “the last resort”, it said. In order to make the projects viable, all stakeholders — that is the developers, financiers, land authorities etc. — would have to take a “haircut” or accept less than what is due to them, it said.

What did the committee recommend?

The committee began its list of recommendations by reiterating provisions of the Real Estate (Regulation and Development) Act, 2016, which mandates that all projects where the land is over 500 square metres or the number of apartments to be constructed are more than eight are registered with the respective state RERA. This, the committee said, must be “enforced”. Registration of the projects would lead to greater transparency, it said.

The committee recommended de-linking the grant of registration or sub-lease by the land authorities to the homebuyers from the recovery of dues from developers. According to the committee, about 1 lakh homebuyers would benefit from this.

Similarly, there were many projects where the homebuyers were not being given no-objection and completion certificates in projects that were substantially complete due to “administrative hurdles”. The committee recommended that the RERAs identify such projects and expedite the process to grant certificates, irrespective of the developers’ paying their dues to the authorities.

One of the main recommendations of the committee was for state governments to set up a rehabilitation package to get the stalled projects running again. Those developers who sign up for the package would have to commit to completing the projects in three years. The committee gave the example of a model package for Noida and Greater Noida that it detailed. T

his includes a “Zero Period” for two years starting with the onset of the COVID-19 pandemic in 2020 where interest and penalties on developers by the authorities would be waived. Developers would be allowed to get a “co-developer” on board to complete the work. The committee proposed a “partial surrender policy”, in which developers can give back some of the unused lands to the authority in exchange for a waiver on the dues for that land.

Who will implement the recommendations?

Being a state subject, most of the recommendations of the committee fall within the purview of the respective state governments. According to Housing and Urban Affairs Ministry officials, the report has been sent to all states, who will decide on if and what they want to implement. In the case of UP, the NOIDA and Greater Noida authorities have already moved towards implementing the model package envisaged in the report, having held meetings last week to discuss the recommendations before they were formally circulated.

For some of the recommendations, the Union Housing and Urban Affairs and Finance Ministries were asked to take action. For instance, the report said the MoHUA should prepare a detailed scheme for using the Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund to “proactively” finance the stalled projects and sent it to the Finance Ministry.

It said the requirement of minimum Internal Rate of Return and first charge in the SWAMIH fund should be reworked. It also asked MoHUA to send a detailed proposal to the Finance Ministry on permitting banks to finance fresh housing loans for new buyers of the unsold inventory of the stalled projects.

For now, apart from Noida and Greater Noida authorities, which have held meetings and started a survey of the stalled projects, it remains to be seen if other states will accept the committee’s findings and implement the measures recommended by it.