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Is your house/ Flat / Apartment stuck in a stalled real estate project?

Get your dream house now! Fantastic facilities and amazing amenities amid an exciting environment!” This is how most developers woo prospective buyers to invest in their property. But what happens when your dream gets shattered because the realty project gets stuck for years and years? It’s a double whammy for many people. Not only are lakhs of rupees stuck, they end up paying home loan EMIs as well as the rent, while bearing the loss of opportunity cost. Had they invested the same money elsewhere, they would have earned better returns over the years. Yet, many homebuyers are stuck in this perilous situation for more than a decade.

A report released by property consultant Anarock in June last year stated that construction work of nearly 4.8 lakh homes worth Rs.4.48 lakh crore were stuck or significantly delayed across seven major cities.

The first step
The formation of the Real Estate Regulatory Authority in 2016 was seen almost as a godsend by lakhs of homebuyers. It was constituted to eradicate existing discrepancies and problems within the real estate sector by setting up rules for developers, such as a standardisation of carpet area and that builders would have to put in 70% of the money they collect from homebuyers into a separate bank account that can be used only for construction purpose. Under the RERA Act, homebuyers are entitled to payments against delay at a monthly interest rate prescribed by the Authority or a refund, along with interest, if a buyer opts for it instead of possession of their house. A landmark judgment by the Supreme Court in a case in November 2021 also clarified that the RERA Act is retroactive and that ongoing projects are those where a completion certificate has not been obtained prior to 1May 2017.

The RERA is supposed to dispose of complaints within 60 days of being filed, though additional time may be taken in some special situations. After an order is passed, the developer is supposed to implement it within 45 days. If this is not done, the RERA can impose a fine of up to 5% of the evaluated cost of the property or imprisonment of up to three years for noncompliance of orders. It can also cancel approval of the promoter’s other projects. The RERA’s order can be challenged either by the buyer or the developer at the Real Estate Appellate Tribunal (REAT), which can either uphold the order or overturn it. The orders passed by REAT can further be contested in the High Court.

The benefit of RERA is that you can file a case individually or as a group, and you don’t require an advocate for it. However, RERA being a quasi-judicial body can only pass judgment. The execution of orders is still dependent on the local administration,” says Prashant Thakur, Senior Director and Head of Research, Anarock. The non-implementation of RERA orders in a time-bound manner is one of its biggest obstacles currently, and the reason why homebuyers have been waiting for months despite favourable orders.

In such cases, many of them have filed writ petitions in their respective High Courts. “The slow progress of RERA’s orders is one of the reasons I advise propsective homebuyers to invest in future projects cautiously. The RERA isn’t an accredition like Agmark. It only promises redressal in case of a problem and doesn’t guarantee that the project is viable. If you’re betting 15 years of your future income, make sure you can take the risk that the project might still get stalled,” says Prakash Natrajan, Director, JN Ventures, a real estate advisory firm. Another step that homebuyers can take simultaneously is to file a case at the consumer courts under the Consumer Protection Act. This puts added pressure on the promoter. “Homebuyers need to be better organised and use every avenue to attack the developer from all sides. Only a blitzkreig of action can deliver positive results,” says Abhay Upadhyay, who fought for more than a decade to get his house.

Buyer’s rights under RERA
Here are the various rights that homebuyer’s have under the Real Estate (Regulation and Development) Act, 2016.
Right to information
A buyer can obtain information and necessary documents regarding sanctions, layout plans, amenities, stagewise completion schedule, and the specifications approved by the competent authority from the developer.
Right to possession
A homebuyer has the right to claim the possession of the plot or apartment as well as the common areas upon completion of the project, as stated in the agreement of sale.
Right to refund
If the builder fails to comply with any of the provisions related to RERA, a homebuyer can claim refund of the amount paid, along with interest and compensation for breach of contract. This will also apply if there is a mismatch in terms of what was promised by the builder and what has been delivered.
Right in case of defect
If there are any structural defects or problems in the quality of the property within fi ve years of possession, the builder will have to rectify these damages within 30 days at no extra cost to the buyer. If there is a defect in the property title, the buyer can also claim compensation under Section 18(2) of the Act, without any law of limitation.

If the developer goes bankrupt
After the Insolvency and Bankruptcy Code (IBC) was implemented in 2016, many developers found it an easy way to wash their hands off stuck projects by declaring themselves bankrupt. In such cases, many homebuyers had to move the National Company Law Tribunal. Under IBC laws, 10% of allottees or 100 buyers, whichever is a smaller number, may file a petition to initiate the resolution process. The NCLT will then appoint an interim resolution professional (IRP) to chalk out a plan along with the committee of creditors (CoC), which is a body of monetary creditors. As homebuyers are considered secured or financial creditors, they are part of the CoC and treated at par with the other financial creditors like banks and institutional ones.

In most cases till now, where homebuyers have gone to NCLT, they have opted to continue the construction of the project. Liquidating the real estate company has almost no benefit as the original promoter has no money left to refund and no othe developer is willing to buy the project. After a resolution plan is finalised and approved by the majority of the CoC, it is adopted by the homebuyers. In most cases, they have opted to invest the remainder of the money due to the promoter back into the project and oversee construction themselves.

However, this is feasible only in cases where there is a standing structure and less than 30% of the work is remaining. Also, completing a project on your own is extremely challenging as you have to organise all the equipment, from tiles to elevators. It is also not easy to convince buyers to invest more and some never pay up, which means others have to pay for their share of the common work too. This also requires a lot of volunteers who would be willing to take out the time and effort to oversee the work.

Buyers in such cases also have to deal with municipal authorities. Developers know how to manage that ecosystem, but for ordinary people, it can be a horrendous experience. For most housing societies, taking this route is an uphill task due to legal and environmental issues,” says Gulam Zia, Executive Director, Knight Frank. Nearly all the homeowners who have taken this avenue have struggled with getting completion and occupancy certificates, mostly because the developer’s dues are still pending with the municipal authorities. This is why the majority of such houses do not have a registration certificate as yet.

“Why are homeowners being penalised for the inaction of authorities or their nexus with developers? In 2009, the Supreme Court had put a stay on a parcel of land in Noida. Despite that, the Noida Authority sold the land to The 3C Company in 2010. When the SC passed its verdict in 2013 that the land be given back to farmers, it was the innocent homebuyers who got stuck,” says Major (Retd) S.S. Rai, who had invested in Lotus 300 in Noida in 2010-11.

Prabhakar Bhardwaj, who has a house in a neighbouring society by the same company, has also had similar struggles. The Noida Authority had imposed a huge penalty on his project for pending dues and to clarify its stance approached the NCLT and the Allahabad High Court. However, a judgment by the Supreme Court clarified that the Authority was an operational creditor and not a financial one, which meant that it would have last right on any accumulated cash being used for construction. So, the first priority would be buyers and only if there was any balance left, it would be given to the Noida Authority.

Getting funds through the SWAMIH Scheme
The SWAMIH investment fund, or Special Window for Completion of Affordable and Mid-Income Housing was created by the Central Government in November 2019 to give relief to homebuyers of stalled projects. It is a Category-II AIF (Alternate Investment Fund) debt fund registered with the Securities and Exchange Board of India (Sebi) and the investment manager of the fund is SBICAP Ventures. However, getting funding under this scheme is tough. This is because of stringent conditions that need to be met as the fund is using public, read taxpayers’, money to finance private projects. The first condition is financial viability.

The delayed venture should be able to generate enough revenue either through pending payments or unsold inventory to cover the cost of completion. Not only this, the interest cost on the invested amount by the fund will also need to be covered. This is because no buyer will want to purchase a flat under construction in a delayed project, so money from the unsold inventory will also take a long time to be recovered. The second is compliance viability as the project should meet all necessary technical compliances and local regulations. Also, it must be registered under RERA, which makes it challenging for projects that were launched in the pre-RERA era to qualify for this scheme.

Another issue is with taking over charge from existing lenders. The SWAMIH Fund wants first charge of all funds, which means all property documents must be handed over to it by the current lender. However, for the ongoing lender, this is the only security that it has regarding the project and it may not want to give up control. Also, handing it over means that the bank’s NPA will go up, which will reflect poorly on its performance.

However, if a project meets all these criterion, the SWAMIH Fund will take over the project completely, including bringing in its own team of contractors and auditors. In March 2022, the Fund had announced that it will invest in about 250 projects with sanctioned funds of `24,151 crore to benefit 1,47,378 homebuyers. While 111 projects had been granted final approval, 142 were given preliminary approval till then. The fight of homebuyers till now has neither been easy nor swift. However, there are windows of opportunities that are opening up, with the government taking proactive steps to resolve issues. Also, as the real estate sector revives and demand for housing revs up again, it has once more become feasible for developers to stretch their resources and stay in the game.

Does your project qualify for the SWAMIH Fund?
The SWAMIH Scheme requires a stalled project to fulfill certain conditions before it offers extra funding to complete the venture.
Affordable housing
At least 90% of the available floor area ratio (FAR) is being developed as affordable housing or mid-income housing units. This is defined as a carpet area of less than 200 sq m, and a cost of up to Rs.2 crore for Mumbai Metropolitan Area, up to Rs.1.5 crore for NCR, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad, and Rs.1 crore for the rest of India.

Networth positive
This means that the value of sold receivables plus unsold inventory is greater than the cost to complete construction and to service the investment by the Fund, which would include the interest on it.
Completion stage
At least 30% of the construction and development should have already been completed.
RERA accreditation
The project should be registered under RERA.
NOC from existing lenders
The Fund requires an NOC for ceding charge from the existing lenders in the project. Each bank has a nodal officer for their projects, which might seek SWAMIH funding.

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