Govt plans registration of flats even if developer files for insolvency
Plagued by the growth in home buyers who cannot get their flats registered because the developer is insolvent, the government is considering whether to allow registration of flats/homes even if the developer has filed for bankruptcy
For a home buyer, the developer going bankrupt is the worst nightmare. The reason is simple: the registration of the property, even if construction is complete, cannot take place. Plagued by the growth in home buyers who cannot get their flats registered because the developer is insolvent, the government is considering whether to allow registration of flats/homes even if the developer has filed for bankruptcy.
Reporting the plans of the government, The Economic Times has said that it would require amendments to the Insolvency and Bankruptcy Code.
If the changes mooted are implemented it would give immense relief to home buyers all over the country who have been suffering inordinate delays in getting their property registered in their names.
Confidence builder
It would not only inject more confidence in a potential home buyer and further fuel real estate sales but also add some revenue to governments around the country.
The number of home buyers is rising fast with home loans becoming a major driver of bank and NBFC loan portfolio. If sales of apartments rise, it pulls up a lot of sectors such as cement, steel, paint, electricals and home décor items with it.
If the proposed changes have to come to fruition, it might need close interaction between the National Company Law Tribunal that hears bankruptcy cases and Real Estate Regulatory Authority that regulates the real estate space.
Significantly, the Insolvency and Bankruptcy Code protects the rights of all types of creditors but buyers are not considered as creditors according to law. Therefore, if a developer files for bankruptcy, the home buyers, irrespective of the extent to which they have paid up, are left unprotected.
In the existing situation, some experts point out that buyers might be treated as creditors if they terminate their purchase agreement and appeal for refund of the money. But that would preclude them from possession if the project is eventually completed, ending their quest for a dream home in the project in question.