G20 sherpa Amitabh Kant-led panel moots rehab package by states for stalled housing projects

New Delhi: A high-level panel chaired by India‘s G20 sherpa Amitabh Kant has said Insolvency & Bankruptcy Code (IBC) should be used as a “measure of last resort” for the resolution of real estate cases. Instead, it has suggested, a rehabilitation package from state governments including a “zero period” for payment of dues among a slew of steps to provide relief to home buyers stuck with stalled projects should be considered first.

The 14-member panel also pitched for a subsidised interest rate scheme and a guarantee fund to encourage financial institutions to fund the many stalled projects.

The panel mooted financing for the completion of stalled projects to be treated as ‘priority financing’ as per the report seen by ET.

In its several recommendations categorised under seven separate heads, the panel also recommended banks and financial institutions be permitted to finance fresh housing loans for new buyers purchasing unsold inventory in such stalled projects. This would ensure the flow of funds to stalled projects from the inventory of unsold flats.

The report has been submitted to the ministry of housing and urban affairs (MoHUA) that set up the committee to suggest measures for the rehabilitation of legacy stalled real estate projects.The report noted that the primary reason for stress in the real estate sector was the lack of financial viability of projects.Accordingly, it suggested that all stakeholders including developers, financiers, and land authorities will need to take haircuts to make projects financially viable.The MoHUA will prepare a detailed scheme based on the recommendations for the finance ministry’s consideration, the report notes.

It suggested sweeping changes to IBC including permitting resolution professionals to transfer ownership of apartments to buyers during resolution process and allowing registration of apartments where possession had been granted.

The report suggests that the Real Estate Regulatory Authority (RERA) be allowed to bypass builders in stressed projects and collect payments from buyers directly that can then be paid off as per the ‘waterfall mechanism’ prescribed.

As per the waterfall mechanism recommended by the committee, revenues will first be used to complete construction. Previous dues of financial institutions and land authorities and other authorities should be treated on a pari-passu basis for taking haircuts.

“No cash flows will be shared with the original promoter till the project is completed and entire dues of financial lenders and land authorities are paid fully,” it said.