Explainer: How SC ruling can reshape housing sector

DELAYED projects, defaulting builders, a toothless regulatory authority, sky-rocketing prices, cash transactions and millions of home-seekers following the mirage of a dream house, aptly describe the real estate landscape in India. In this backdrop, the recent ruling of the Supreme Court distinguishing between speculative investors and actual homebuyers, and defining the role of regulatory authorities, is a huge step forward to smoothen the ruffled edges of the real estate sector.

With the apex court making it clear that housing is a fundamental right under Article 21 and should not be treated as a speculative investment, housing in India is no longer seen as just a contract or a market gamble.

The SC has set a timeline of three months for the Centre to form a committee to propose “commercially viable systemic reforms” for the real estate sector.

If you are a homebuyer

Genuine homebuyers stand to gain as the SC has clearly identified speculators and mandated that those buying property just for high returns won’t be allowed to misuse laws. Speculative investors can no longer “twist” insolvency laws and will have to take their cases to consumer courts or the Real Estate Regulatory Authority (RERA) rather than the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT).

Homebuyers will now have representation in creditors’ committees during insolvency proceedings. They can get timely completion of projects as regulatory authorities have been made accountable.

The court mandated that any negligence in approvals or oversight by RERA will be considered an “unpardonable error in law”.

There is also hope for those stuck in stalled projects as the government has been asked to provide bridge financing by expanding the SWAMIH (Special Window for Affordable and Mid-Income Housing) Fund or establishing a new revival fund under the National Asset Reconstruction Company Limited (NARCL).

If you are a builder

Builders are likely to get some relief from the court’s mandate that insolvency proceedings should be project-specific rather than for the entire company. While primarily aimed at safeguarding the interests of homebuyers, the move also gives a breather to developers having multiple under-construction projects.

For regulatory bodies

There is also hope for a stronger regulatory mechanism as the SC has directed state governments to provide RERA with adequate infrastructure, expert staff and stronger enforcement powers to ensure that its orders are implemented swiftly.

The Centre has been asked to work towards bringing uniformity in RERA rules across states.

In order to strengthen tribunals, all vacancies in NCLT and NCLAT have to be filled immediately and infrastructure strengthened. The court suggested that retired judges can be used on an ad hoc basis.

Special wings in housing boards and urban development authorities are to take over and complete stalled projects.

Where directions fall short

While there’s no denying the concern for the common man, a lot more power could have been packed in the SC’s punch to rout malpractices.

The malaise of speculation is deeply rooted. When builders blatantly claim 70-80 per cent sale at the time of pre-launch, it’s clear that the speculators are “gobbling up” the inventory and creating a price bubble by engineering scarcity. Moreover, the speculators in most cases are actually “frontmen” used for parking black money. There is a need to put proper checks to curb this.

There can also be a regulation that anyone buying a second house will get only 20 per cent finance from banks and housing finance companies. This will keep the influx of investors under control and help genuine buyers.

Taking on errant builders

On making the insolvency clause project-based rather than builder-based to save homebuyers, though the intention is good, the ruling leaves a huge gap open for errant builders to slither out and avoid accountability. A builder who “uses” the hard-earned money of home-seekers can blatantly start a new project elsewhere, ensnaring many more with a promise of a home. The need of the hour is to make stringent provisions to deter errant builders.

A developer filing for bankruptcy should have personal assets assessed and even attached rather than those of their “bankrupt” companies.

Rather than putting the ball in the court of Central and state governments, direct instructions would have been a more effective roadmap.

There is also a need to differentiate between a first-time homebuyer and a speculative investor. All reforms need to be fine-tuned for first-time buyers, who neither have the deep pockets to fight court cases, nor the stamina to stand up against the strong builder lobby.

It remains to be seen whether the “well leveraged” investors and builders will fall in line or this ruling will be just rhetorical.