In a welcome news for homebuyers, the Union Cabinet has reportedly approved amendments to the Insolvency and Bankruptcy Code (IBC) 2016, allowing homebuyers the status of financial creditors. This will grant them equal priority as banks and other institutional creditors while recovering dues from stressed or insolvent realty firms.
“This is a great news for homebuyers,” says Ramesh Nair, CEO & Country Head, JLL India. “Previously, if any realty firm went through bankruptcy, the priority of recovering dues from the project was first given to financial creditors such as banks and institutions, followed by operational creditors such as vendors and employees. Homebuyers were widely regarded as merely consumers and did not specifically fall under the liquidation claim waterfall, placing them at a disadvantageous position and exposing them to significant risk upon investment in under-construction projects.”
“In the previous discussion, the cabinet had raised their concerns as homebuyers were not involved in the insolvency process as creditors and were also not allowed to initiate the insolvency process. The committee went on to examine the peculiarity of the Indian real estate sector where the delay in completion of under construction apartments had become a common phenomenon. It recognised that amounts raised under home buyer contracts are significant and contribute to the financing of construction of an asset in the future, thus categorizing them as “secured financial creditors.”
Adds Nair, “After today’s judgement, if you are a homebuyer in a project that has been stalled by insolvency, you will be granted equal rights with other creditors such as banks and institutional lenders, making it easier for you to recover your money. The landmark judgement will infuse confidence in the homebuyers to invest their money as it gives them priority in the recovery of dues if the realty firm in which they have invested their hard-earned money goes bust.”