For a state that was initially reluctant to get RERA (Real Estate Regulatory Authority) going, it is commendable that Uttar Pradesh is now becoming proactive on stalled real estate projects. The UP RERA chief has said it will deregister more than two dozen 'stuck projects' in the state's NCR towns, and invite fresh tenders from developers to complete construction. Data suggests that more than 30,000 homebuyers will benefit from this-a large number. The idea of roping in new builders to complete projects is an excellent one; as the RERA chief has said, the unsold apartments and surplus land will be used by the new promoters to generate the resources to complete construction. That should be a good-enough incentive for builders to participate in these projects. Indeed, all states should take a leaf out of the UP RERA's initiative of using Sections 7 and 8 of the RERA Act, 2016. Moreover, they must ensure that the RWAs cooperate-the process requires a nod from three-fourths of the homebuyers-else the initiative cannot be successful. The homebuyers must remember that completing projects, by bringing in new promoters, is a far better option than letting these go to the bankruptcy court.
Data shows that as many as 421 real estate companies had entered the bankruptcy court by the end of June; indeed, the number of real estate companies that are in the NCLT has doubled in less than a year since the collapse of Infrastructure Leasing & Financial Services (IL&FS). Sector experts expect the numbers to increase, and have pointed out that the resolution process in the tribunals and courts is a time-consuming one; what's worrying is that many assets could be liquidated at throwaway valuations, or buyers are able to get them at low prices, with banks taking massive haircuts. Intervening before a company is admitted to the NCLT will help projects fetch their right value, and banks, too, would recover more in quicker time.
There are few signs of improvement in builders' finances, and destroying value would be unfortunate. In the September quarter, NCR saw housing sales of just 9,830 units, a 13% year-on-year fall and a 22% quarter-on-quarter fall. While the measures announced by the government in mid-September will help builders, much of it is for affordable housing; builders of existing non-affordable housing don't really gain. In fact, the financial assistance of Rs 20,000 crore may not help resuscitate much of the sector because most housing projects today are stressed whereas the scheme is only meant for those projects that have not been admitted to the NCLT for a resolution process, and those where the loan exposure hasn't gone bad. Moreover, 60% of construction should have been completed, which is probably not the case for the majority of projects. It is the promoters with weaker balance sheets and lack of access to conventional sources of funding who need help. To be sure, the government doesn't want to be bailing out every errant builder, but it may want to look at some projects that are not in the NCLT but where the loans may have gone bad. A bigger fund-at least Rs 30,000 crore-with a larger contribution from the government could help, with some of the conditions relaxed. Until then, it is good that UP RERA is working to revive such projects.