(MENAFN- Live Mint)

The ministry of corporate affairs has started discussing policy reforms with other ministries and regulators with an aim to speed up completion of stalled real estate projects, revive insolvent developers, and make debt resolution more efficient, said two persons with knowledge of the development.

The ministry is in the process of setting up a committee with members from different ministries and regulatory agencies that will work on a blueprint of“commercially viable systemic reforms" focused on tackling distress in the real estate sector, according to the persons.

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The idea is to restore public confidence in the real estate sector. Even two years ago, investments of over ₹4 trillion were stuck covering 4.12 lakh stressed dwelling units in the country, an expert committee led by India's former G20 Sherpa Amitabh Kant had said in July 2023, citing figures from Indian Banks Association. The numbers are expected to have only grown since. More than half of these-about 2.40 lakh apartments or houses-were situated in the national capital region.

The committee the corporate affairs ministry is setting up is different from a panel recently set up by the country's bankruptcy regulator, the Insolvency and Bankruptcy Board of India (IBBI), to explore project-wise bankruptcy resolution among real estate projects as different from the current practice of company-level resolution, as reported by Mint on 3 November.

The new committee will have members from the ministries of law as well as housing and urban affairs, think tank National Institute of Urban Affairs, IBBI, and the department of financial services among other experts.

“The committee will give its recommendations in six months. Formalities of setting up the committee are on and a preliminary meeting of officials from different ministries has already happened last week on the distress real estate sector is facing," said one of the persons, who spoke on condition of not being named. The committee will be formalized soon.

The committee will examine inclusion of real estate projects undergoing bankruptcy proceedings within the scope of an existing scheme introduced in 2019 for completing affordable home projects that are stuck. That may be achieved by broadening the scope of the Special Window for Affordable and Mid-Income Housing (Swamih) Fund meant to benefit home buyers struggling with the dual burden of mortgage payments and rent, said a second person, who also did not want to be identified.

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In the FY26 budget, union finance and corporate affairs minister Nirmala Sitharaman had announced a new version of the scheme with ₹15,000 crore funding to complete additional 100,000 homes. That is in addition to the 50,000 homes already completed under the scheme and another 40,000 to be completed this calendar year.

Real estate and construction sectors together account for a third of the 8,500 bankruptcy cases admitted in National Company Law Tribunal since 2016 under the under the Insolvency and Bankruptcy Code (IBC). Further, of the 1,258 insolvency cases across sectors where resolution plans have been approved so far, real estate companies comprise 17%, data from IBBI shows.

Pressing need for reform

The other proposals the panel being set up by the ministry of corporate affairs will examine include strengthening the judicial capacity and infrastructure of tribunals including setting up dedicated National Company Law Tribunal (NCLT) benches for insolvency resolution, project-wise insolvency resolution, and early registration of real estate projects with local revenue authorities for protection of home buyers.

Better coordination between the proceedings under the IBC and the Real Estate (Regulatory and Development) Act (Rera Act) for stress resolution and progress on ongoing projects, coupled with targeted concessions for stalled projects will improve the outcome of insolvency resolution, said Ashok Haldia, who chaired an expert group of Indian Institute of Insolvency Professionals of ICAI on real estate debt resolution.

“In respect of stalled projects, where resolution plans are not forthcoming, special concessions-for example, sanction for additional floor area ratio/floor space index-could be given to enable the generation of additional funds to complete the projects," said Haldia, adding project-wise resolution of housing projects should be enabled.

He also said that lenders cannot claim superiority over homebuyers simply because of the security cover they hold. They should be accountable for laxity in due diligence and monitoring implementation as also marketing projects to homebuyers. "For this reason, the homebuyers should also get a moratorium for repayment of loan borrowed from these banks," said Haldia, who previously served as secretary at ICAI, short for Institute of Chartered Accountants of India that regulates chartered accountancy in the country.

Homebuyers affected by stalled projects, however, are not very enthused about the idea of project-wise insolvency resolution.

“If a company is not able to make money out of one project and it becomes unviable, then it makes a good case for using revenue from the profitable projects on its stalled projects. Bringing in project-specific insolvency proceedings may not help distressed homebuyers and in fact this may be a way for developers to not use their revenue from viable projects to complete unviable ones," said Abhay Upadhyay, president, Forum for People's Collective Efforts, a homebuyers association.

Project-wise debt resolution is under consideration of policy makers to ring fence unviable housing projects and to protect the interests of home buyers in healthy projects from the financial stress faced by stalled projects.

Upadhyay, who is also a member of Central Advisory Council of RERA said that the idea of using the Swamih fund for IBC cases may not be effective as the fund was set up with the basic tenet of providing last-mile funding to projects which are otherwise financially viable, while projects and developers undergoing insolvency resolution in the country are at that stage because they are not solvent and, therefore, not viable.

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“Allowing projects and developers undergoing corporate insolvency resolution access the Swamih fund would change the basic character of the fund," he said.

Haldia suggested that state development and licensing bodies such as Delhi Development Authority and New Okhla Industrial Development Authority, which plans and develops Noida city southeast of capital Delhi, should not cancel leases or approvals during resolution proceedings and instead file claims like other creditors.

The corporate affairs ministry is exploring these real estate insolvency reforms on the direction of Supreme Court in a recent case related to home buyers: Mansi Brar Fernandes Vs. Shubha Sharma and others.

Queries emailed to the ministries of corporate affairs, law, housing and urban affairs and to IBBI on 6 November seeking comments for the story remained unanswered at the time of publishing.

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