IBC ordinance gives another reason to Home Buyers to invest in Real Estate
We are euphoric to announce this welcoming change where in the home buyers will now get the status of “Financial Creditors” as per the recent amendment in the Insolvency and Bankruptcy Code (IBC) 2016 by the Government of India. In the month of August this year the President of India has also granted his nod of approval to the IBC (Amendment) Ordinance. Like any other stake holder participating in Real Estate Project, home buyers will also be granted with the exact same benefit which grants them the representation in the creditors committee. The IBC amendment was made after acknowledging the fact that money which is raised from the home buyers is used as a mean to finance construction and thus they should be treated as any other financial creditor.
Approximately 20 to 30 percent of the Real Estate Projects face delay because of the various reasons from the developer. With the delay in the project, it becomes very difficult for them to manage their financials, as home buyers in India invest most of their savings in making the down payments of the property, pay EMI’s on the loan and in the current place of their stay they also continue to pay the rent at the same time. That turns out to be a triple whammy for most of them but with the new IBC Amendment, this scenario will change once and for all.
The Amendment in the IBC ordinance will bring a great level of transparency in the deals and curb the fly-by-night developers. By the virtue of IBC (Amendment) Ordnance, reputed developers offering ready to move apartments or apartments nearing possession will now come to fore which will automatically boost the sales numbers. Real Estate will see an increase in the pricing despite the increased borrowing costs, this is because 20 to 30 percent of the total value comes from institutional lending and rest comes from the construction linked payments which are made by home buyers. It is only under extreme financial stress that the lending institute can go for IBC Ordinance because most of the times, stressed Real Estate assets are taken over by sponsors by refinancing them.
It was only last year when Real Estate (Regulation and Development) Act (RERA) was implemented to bring transparency in the system and protect the interests of home buyers. The IBC Amendment added another cherry to the cake by adding an extra layer of security to the potential home buyers by giving them the status of financial creditors. These major reforms in the system of Real Estate Industry make it very evident that the Government intends to empower home buyers and how.