Finance Minister Arun Jaitley on Friday said the newly promulgated insolvency ordinance gives a good deal for “home buyers”, who now have the right to initiate corporate insolvency against errant developers.
With the new ordinance treating home buyers as a ‘financial creditor’, they have acquired the right to be on the Committee of Creditors; got voting right and can influence the resolution process, Jaitley said in a Facebook post.
The new ordinance equates an “allottee” of a “real estate project” to be a person having a commercial effect of borrowing and therefore treated as ‘financial creditor’.
Even in the unlikely eventuality of liquidation, a home buyer now stands at par with other financial creditors, he said.
Jaitley highlighted that liquidations are rare in asset-owning companies. “Resolution will be the natural course,” he said. Jaitley advised the real estate industry to “formalise itself” on the lines of the film industry.
“Just as the film industry, in the last few years, has increasingly formalised itself, the real estate industry would eventually will have to formalise itself,” Jaitley said.
Jaitley sees a scenario where sound and structured real estate developers will remain. “Fly-by-night operators would be eliminated. Projects would be completed in reasonable time and investors would get their share of allotments expeditiously,” he said. Construction sector is already seeing a double-digit growth. RERA and the new ordinance will catalyse this process further, he said.
Urbanisation
Jaitley highlighted that post 1991 economic liberalisation, there has been a phenomenal growth in the creation of new townships, urbanisation and more particularly sub-urbanisation.
“This trend is likely to accelerate. Economic growth gives rise to aspirations. More purchasing power, migration from rural areas and aspiration to improve the quality of life are increasing,” he said.
In and around major townships, massive real estate projects have been coming up. Many of these are by professional real estate developers. This is also an area where many “fly by night” operators have entered, he said. Some developers have very little resources of their own. They use the homebuyer’s money to develop, invest in land banks and then get caught in debt trap. The homebuyer is the worst sufferer as he faces a triple whammy, according to Jaitley.