A 14-member committee formed to examine the status of stalled real estate projects has submitted its report on the stalled real estate projects and recommended ways to complete them.

The committee was formed in March by the Union Housing and Urban Affairs Ministry comprising officials of the Union Finance Ministry, Uttar Pradesh and Haryana state governments, the Insolvency and Bankruptcy Board of India, the National Housing Bank and the Real Estate Regulatory Authority (RERA) of Haryana and UP.

In an interesting output, the Indian Banks’ Association chief executive Sunil Mehta told the committee 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. While the other 21% of the units are in Mumbai Metropolitan Region.

Chaired by former NITI Aayog CEO and India’s G20 Sherpa Amitabh Kant, the committee has handed over the report to Housing and Urban Affairs Minister Hardeep Puri.

Lack of financial viability leading to stress

In its report, the committee concluded that the main reason for the stress in these projects was the “lack of financial viability” leading to cost overruns and time delays.

The way to solve the problem would be to improve the Internal Rate of Return of the projects in order to attract funding.

It highlights that Judicial interventions, like the use of the Insolvency and Bankruptcy Code, should be the last resort.

In order to make the projects viable, all stakeholders would have to take a “haircut” or accept less than what is due to them, it said.

The committee reiterated the provision of the Real Estate (Regulation and Development) Act, 2016 that states that all projects where the land is over 500 square meters or the number of apartments to be constructed are more than eight are registered with the respective state RERA.

It highlighted that this regulation must be enforced and the registration of the projects would lead to greater transparency.

It further 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.

The committee further recommended that the RERA should identify projects where the homebuyers were not being given no-objection and completion certificates in projects that were substantially complete due to administrative hurdles. For such projects, the authority should expedite the process to grant certificates, irrespective of the developers’ paying their dues to the authorities.

Rehabilitation packages for stalled projects

A key recommendation was for state governments to set up a rehabilitation package to get the stalled projects running again.

As per the committee, 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.

This 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.

Also, the 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.

Most of the recommendations of the committee fall within the purview of the respective state governments, being a state subject. However, for some of the recommendations, the Union Housing and Urban Affairs and Finance Ministries were asked to take action.

The requirement of minimum Internal Rate of Return and first charge in the SWAMIH fund should be reworked, the committee said.

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.