Homebuyers get rights equal to banks, FIs, to recover dues from bankrupt builder
In a welcome move for homebuyers, the Union Cabinet has reportedly approved amendments to the Insolvency and Bankruptcy Code (IBC) allowing the status of financial creditors to homebuyers. This status means a homebuyer, who had paid money for buying property in a project that has been stalled by insolvency, will have equal rights with other creditors like banks and institutional lenders, making it easier for her to recover her money.
"This is a great news for homebuyers," says Ramesh Nair, Chief Executive and Country Head, JLL India, adding, "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."
The Union Cabinet, during its previous discussion, had expressed concerns about homebuyers not being involved in the insolvency process like creditors and were also not allowed to initiate the insolvency process. The Cabinet 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 homebuyer contracts are significant and contribute to the financing of construction of an asset in the future, thus categorising them as secured financial creditors.
In the current financing landscape, majority delinquent real estate assets are either restructured or taken over by new sponsors and subsequently refinanced - especially when the project is structured as a special purpose vehicle. Therefore, it is only in cases where the developer is under extreme financial duress that financial institutions are likely to proceed under the IBC. 
Following the Cabinet ordinance, homebuyers will share equal priority, in terms of default waterfall, with lenders, in case of bankruptcy-led liquidation. Accordingly, homebuyers will be part of the Committee of Creditors that approves a resolution plan and their voting rights will be in line with their advances or money paid to the builder or developer.
India Ratings and Research (Ind-Ra), however, feels that the final contours of the code needs to be seen for smooth functioning of the committee, considering several homebuyers and voting rights. "This will strengthen home buyers' right and power in case of bankruptcy of the developer and any default in payment or planned schedule. It may strengthen real estate buyers' (end-customers) protection and boost the customer sentiment," it added.
As operational creditors, homebuyers' interests are not fully optimised up till now, as opposed to other operational creditors in other business under the ambit of IBC. With the proposed revision, homebuyers will be equally treated with financial lenders in the liquidation proceeds of the defaulting builder. 
However, Ind-Ra feels this could negatively impact lenders since recovery proceeds will now have another layer of distribution, which was not factored in at the time of origination of loan to the developer. This would effectively increase the realised haircuts for the financers. In other words, without changes in probability of default, loss given default (LGD) could increase for the financiers. 
"On the contrary, home buyers could recover some portion of their dues in case the builder defaults as against the current scenario where buyers have to depend on the residual value after financial creditors are paid, which entails higher hair-cuts. We believe end-users' propensity to initiate case under the IBC would be much lower than investors', considering the end-use and emotional attachment with the property for the former," the ratings agency added.
Echoing similar sentiments, Anuj Puri, Chairman - ANAROCK Property Consultants, says, it needs to be seen how the resolution mechanism for claiming the dues actually falls in place for the concerned homebuyers. He said, "In fact, to be truly relevant, the entire implementation process needs to be clarified to homebuyers. They need to know how exactly they will be represented in the creditors' committee - in other words, whether the National Company Law Tribunal (NCLT) will appoint a resolution professional to represent their rights and interests."
"That said, this amendment will certainly go a considerable way in bringing more transparency into the overall funding of projects across the country. With homebuyers now getting the opportunity to claim their dues from builders, there is an even stronger burden on developers to deliver on time. We will now see builders become more cautious while taking funds from financial institutions and banks, as they would now also be accountable to homebuyers as well as the financial institutions if their business goes belly-up," Mr Puri added.
Ind-Ra sees this move of granting creditor's status to homebuyers as positive for housing financiers over the long term. It says, "Besides home buyers, the ordinance will benefit housing financing companies' asset quality, especially developer-led originations, though with a lag. Housing finance companies, though not a direct beneficiary of the policy change, could get some comfort as buyers' (home loan taker) rights over a defaulting builder and cash flows on liquidation will enhance. Eventually, with increasing customer confidence there will be more takers for home loans, benefiting housing financiers."
  • Like this story? Get our top stories by email.



    Pandurang Karpe

    2 years ago

    Really this action by Govt. should have taken long back. Now it is ok Home buyers interest is safeguarded ......

    RBI to allow money transfer between e-wallets and banks through UPI

    The Reserve Bank of India (RBI) has decided to allow interoperability between e-wallets and banks through unified payment interface (UPI). This will allow customers to transfer money between e-wallet and bank accounts through UPI, in a phased manner. The central bank also tightened know-you-customer (KYC) norms for e-wallets, mandating the service providers to comply with full KYC within 12 months of opening account of a customer.


    RBI says its Master Direction lays down eligibility criteria and conditions of operation for payment system operators involved in the issuance of semi-closed and open system prepaid payment instruments (PPIs) in the country. Banks are permitted to issue semi-closed and open system PPI, while non-bank entities are allowed to issue only semi-closed PPI, after necessary permission from RBI. Additionally, non-bank entities, seeking authorisation from RBI are required to have a minimum net-worth of Rs5 crore.


    Navin Surya, Chairman, Payments Council of India (PCI) says, "This is third edition of reform in PPI, first one came with allowing non-banks to participate in regulated payment systems, second one came which allowed domestic remittance from PPIs to Bank Accounts. This third edition is laying foundation for PPI to become interoperable with all existing payment instruments and in par of acceptance of debit and credit cards in phases manner. This would ensure that PPIs contribution to digital payments from current share of less than 10% can move to 30-40% over the next five years."


    Asking PPI issuers to comply with KYC norms for customers, RBI has directed them to maintain a log of all transactions undertaken through PPI for at least 10 years. PPI issuers will also have to file the Suspicious Transaction Reports (STRs) to Financial Intelligence Unit-India (FIU-IND).


    As per the guidelines, PPIs are allowed to be loaded or reloaded by cash, by debit to a bank account, by credit and debit cards, and other PPIs. "Electronic loading or reloading of PPIs shall be through above payment instruments issued only by regulated entities in India and shall be in Indian rupees only. Cash loading to PPIs shall be limited to Rs50,000 per month subject to overall limit of the PPI. The PPIs may be issued as cards, wallets, and any such form or instrument which can be used to access the PPI and to use the amount therein. PPIs in the form of paper vouchers will no longer be issued from the date of this Master Direction except for meal paper vouchers where separate timeline has been indicated," RBI says.


    As per RBI, any person can open an e-wallet through mobile number verified with one time pin (OTP) and a self-declaration of name and unique identification number of any of the officially valid documents.Officially valid document (OVD) as per RBI means passport, the driving licence, permanent account number (PAN) Card, Voter's ID Card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government, letter issued by the Unique Identification Authority of India (UIDAI) containing details of name, address and Aadhaar number. 


    E-wallets with minimum KYC can be loaded or used with a limit of Rs10,000 in a month, with a overall cap of Rs1 lakh per year. These PPIs can be used only for shopping of goods or payment of services and not for fund transfer to bank accounts or other e-wallet/s. These e-wallets are mandated to become fully KYC compliant within 12 months, RBI says.


    For fully KYC compliant e-wallets, the limit is Rs1 lakh per month and funds can be transferred to pre-registered beneficiaries.


    Bhavik Vasa, Chief Growth Officer, ItzCash Ebix, thinks the RBI should have provided more clarity on some downward revisions like limiting minimum KYC PPI to Rs10,000. "As an industry we would like to seek clarity with the regulator and understand better on reasons for a few downward revisions and limits, like minimum KYC PPI limit of Rs10,000 and also gift cards, which are non-cash out instruments and cash loading of PPI limit. These may limit our fight against physical cash in the economy, especially when we can buy gold up to Rs2 lakh with cash in our country," he says.

  • Like this story? Get our top stories by email.



    Mahesh S Bhatt

    3 years ago

    So some control in E Currency is getting in place!!Still Consumer redressal norms to happen & protection against e Wallet Hacks??Good Mahesh Bhatt

    Flight tickets drop two weeks prior to festival: Study
    Amidst the festive madness also exist the perennial late travellers woes -- but according to a latest study by global search engine Skyscanner, flight prices from Delhi, Mumbai and Bengaluru all see a drop two weeks prior to the festival period before sharply rising one week before departure.
    With Diwali around the corner, there are still many tardy travellers who leave it to the last moment to book flights for their break and risk paying 15 per cent more than the average fare by leaving booking until the last minute.
    Analysing data from last year's Diwali travel period, Skyscanner notes that flight prices from Delhi, Mumbai and Bengaluru all see a drop two weeks prior to the festival before sharply rising one week before departure, said a statement.
    Taking cue from the searches of travel from Delhi, Mumbai and Bengaluru to different destinations, travellers can save 20 per cent, 15 per cent and 6 per cent, respectively, on flight fares. Also noteworthy is that travel from Delhi or Mumbai to other cities is actually cheaper than from Bengaluru.
    In the wake of availability of flight seats, airport taxes and length of flights, the study of Skyscanner's data further reveals that the same tickets when booked a day prior to departure can cost travellers from Delhi, Mumbai and Bengaluru upward by 12 per cent, 6 per cent and 15 per cent, respectively. Nonetheless, Bengaluru remains an expensive route for last minute travellers.
    Commenting on the findings, Reshmi Roy, Senior Growth Manager at Skyscanner said: "Diwali is a very important festival in India, one where people travel far and wide to visit friends and family. This data shows a huge number of travellers are missing out on the best prices by leaving booking until the last minute."
    "We hope travellers will use the insights that Skyscanner's data provides to find more cost-effective travel options this Diwali season. Knowing that one is still not too late to find the best fare, is definitely good news."
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.


  • User 

    We are listening!

    Solve the equation and enter in the Captcha field.

    To continue

    Sign Up or Sign In


    To continue

    Sign Up or Sign In



    online financial advisory
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)