Bengaluru: The Supreme Court recently came down heavily on speculative investors in real estate. Additionally, it said the real estate sector needs systemic reforms to infuse credibility. What prompted this? Mint explains.
What did the Supreme Court ruling say?
The Supreme Court issued a ruling on 12 September in response to a batch of appeals following a decision by the National Company Law Appellate Tribunal on a housing project in Greater Noida. Affirming NCLAT’s ruling that termed the appellants in the case as ‘speculative investors’, the Supreme Court said speculative investors could destabilize India’s residential real estate sector.
The court added that the residential real estate sector needs to be fortified to protect genuine homebuyers and the purpose of housing as a fundamental right, while ruling against the misuse of the Insolvency and Bankruptcy Code by speculative investors.
Why are speculative investors damaging?
Investors have always been a part of real estate. Speculative investors, on the other hand, buy properties purely for short-term financial gains, say via premature exits through buyback schemes, with no intent to use the property as a residence.
The National Capital Region has been a victim of speculative deals artificially inflating demand and prices, fuelling an asset bubble that saw developers sell homes in bulk to short-term investors without completing the projects. As a result, thousands of genuine home buyers were stranded with unfinished homes.
What did the Supreme Court prescribe as a remedy?
The Supreme Court suggested changes involving the government and agencies that are meant to safeguard homebuyers. Within three months, a committee represented by the ministries of law and housing, finance experts, and other government bodies have to suggest viable systemic reforms to cleanse India’s housing sector.
Also, according to the court, real estate insolvency cases should be resolved on a project-by-project basis to protect viable projects and genuine homebuyers.
What can RERA do?
The Real Estate (Regulation and Development) Act 2016 has often been criticized as a toothless tiger and that its success so far in resolving complaints has been moderate at best. It needs to do more.
RERA across states must be equipped with adequate infrastructure, empowered tribunals, and effective enforcement mechanisms so that their orders are implemented swiftly. Before approving any project, RERA needs to conduct thorough due diligence.
What about stressed projects?
The residential real estate sector may be witnessing an all-time high boom, but the stressed projects crisis is far from over. The government’s Special Window for Affordable and Mid-Income Housing (Swamih) investment fund can be expanded or a new revival fund should be set up to provide bridge financing to stressed projects undergoing corporate insolvency resolution. This will prevent liquidation of viable projects.
Can developers be put in check?
The Supreme Court has called for tighter regulatory and a legal framework to ensure developers can’t defraud homebuyers and are bound to deliver projects on time. Many developers have indulged in speculative practices and encouraged a parallel cash economy in real estate.
Schemes of assured returns, compulsory buybacks, or easy exit options have masqueraded as housing contracts. State governments and their agencies need to step up and enforce stricter ways to prevent such malpractices.
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