- While we were growing up, it was always imbibed on the young impressionable minds to own a shelter that would provide cushion from unexpected sporadic vagaries of life. Since the majority of the citizens are classified as lower and middle class, most of us would strongly concretize resolve to have our own shelter. For many of us, this is no less than a dream come true as three-fourths of life is expended in attempting to realize the same. And what a sense of relief, excitement, contentment, and achievement washes over while soaking in the feeling of residing in the self-earned place eventually.
PC: Freepik
- Very few are fortunate in not going through the rigmarole of owing a place vis-à-vis finance and other related challenges. However, we also know for a fact that the real estate industry is not exactly looked upon as a trustworthy entity where most often than not, people’s investment goes down the drain because of unscrupulous builders. Especially true of urban dwellers. Protecting the investors/buyers assumes paramount importance since what is at stake is the hard-earned money of ordinary citizens, mostly loaned from banks. No wonder, a home is the single largest investment in the lives of most people despite the process of buying a home is fraught with risk.
- Note that it also has some unique features too. Often, a homebuyer is a financial creditor of real estate projects as payments are made well before delivery of the house. Unfortunately, there was little protection earlier from delays in delivery or outright cheating on the part of developers. Two laws passed in 2016 the Insolvency and Bankruptcy Code and Real Estate (Regulation and Development) Act, have begun to tilt the scales. Remember, the passage of these laws and their subsequent amendments have often triggered legal challenges. Welcomingly, many of the consequent Supreme Court judgments have reinforced their underlying spirit by providing homebuyers with a degree of protection.
PC: Jcomp
- Recently, an apex court judge held that if there is a conflict between RERA and SARFAESI, 20-year-old legislation to protect financial creditors, the former will prevail. Sadly, the story of the last six years has been one of half-hearted protection for homebuyers. In 2018, Parliament cleared an amendment to IBC to treat homebuyers as financial creditors. Indeed, it was a big step, but an important aspect was untouched. IBC prioritises payments to secured creditors such as banks. Where do homebuyers stand on the priority list? GOI’s position is that it depends on the nature of the buyer-builder agreement. Note that there’s an asymmetry of power between buyers and builders.
- Further, an SC verdict in 2019 held that IBC shall take precedence over RERA in case of a conflict, putting secured creditors in pole position. Again, in March 2020, another IBC amendment made it necessary for homebuyers to get a quorum to trigger the Code meant to prevent frivolous cases but overlooking the asymmetry. Remember, only the builder has complete information on the identity of all buyers. Of the three stakeholders viz., buyers, builders, and banks, it’s the individual buyer who continues to bear most of the risk. It is imperative the balance of risks needs to be fair and the mess of unfulfilled contracts by builders should be sorted out as well.
