Union Minister Arun Jaitley on Friday said the new ordinance amending the Insolvency and Bankruptcy Code (IBC) to treat homebuyers as financial creditors will eliminate “fly by night” operators and will force the real estate industry to eventually formalise itself. Listed as “minister without portfolio” in the Prime Minister`s official website, he said the ordinance would help reform the real estate sector and would benefit home buyers in multiple ways. “He (home buyer) is now treated as financial creditor. He can initiate a corporate insolvency for a resolution against the errant developer. “He acquires the right to be on the Committee of Creditors. He gets voting right. He can influence the resolution process. In the unlikely eventuality of liquidation, he stands at par with other financial creditors,” Jaitley wrote in a Facebook post.
President Ram Nath Kovind had on Wednesday given assent to the ordinance amending the IBC to recognise the status of home buyers as financial creditors. Being treated as financial creditors would bring home buyers at par with banks and other institutional creditors as they would now have a share in the proceeds earned by sale of assets of bankrupt real estate companies.
Jaitley said that construction was already growing at a double digit rate and that the new ordinance — along with Real Estate (Regulation and Development) Act — would catalyse this process further. He added that just as the film industry, in the last few years, had increasingly formalised itself, the real estate industry would eventually have to formalise itself as well. “Sound and structured real estate developers would remain. The `fly by night` operators would be eliminated. Projects would be completed in reasonable time and investors would get their share of allotments expeditiously,” the Minister said.
According to Jaitley, there had been a phenomenal growth in urbanisation post 1991 economic liberalisation leading to construction of more townships, a trend that is likely to accelerate. “This is also an area where many `fly by night` operators have entered. Some developers have very little resources of their own. They use the home buyer`s money to develop, invest in land banks and then get caught in debt trap,” he said.
“The home buyer is the worst sufferer. He has a triple whammy. He has invested his savings with the developer. He may be paying EMIs on the loans taken and may continue to pay either rent of his currently occupied property or live in some alternate accommodation under compulsion,” the Minister added.
Jaitley underwent a successful kidney transplant surgery last month and has been out of action ever since. However, he had been frequently expressing his views on several issues through his Facebook page.