You just want that dream home and now might be the time to get it. It's the festival season and banks are raining offers to persuade you to buy your dream home. The Prime Minister Narendra Modi scrapped Rs 500 and Rs 1000 notes on November 8th 2016, to curb the spread of black money in the economy.
A lot of black money is hidden in real estate. With the Government cracking down on Benami properties and tax evaders finding it very difficult to hide black money in real estate after demonetization, the cost of properties in many cities has come down.
You're jumping with joy. With property prices falling and banks cutting home loan interest rates, you could just get to live in your own house. But there's a problem....A reputed developer Jaypee Infratech has been declared insolvent. More builders could follow. You need to be very careful while buying your dream home.
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The real estate firm Jaypee Infratech is the first real estate firm in India to go bankrupt. What's worrying is more builders could soon be declared insolvent. With RERA (Real Estate Regulation and Development Act, 2016) passed in Parliament, unscrupulous builders have no escape.
RERA will introduce fair practices in the real estate sector and protect the interest of you and other homebuyers while imposing penalties on errant builders. Many builders would prefer to declare themselves bankrupt to escape RERA and transfer their losses to you and other buyers.
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1. What happens if a builder is declared bankrupt?
A bank/lender will approach the National Company Law Tribunal (NCLT), to build a case against the builder who has defaulted on the loan repayments. Under IBC (Insolvency and Bankruptcy Code), after a case is referred to the NCLT, the tribunal has just 14 days to accept/reject the case.
If the case is accepted, a resolution plan has to be implemented within 6 months, which is extendable by a maximum of 3 months. IDBI Bank filed a petition against Jaypee Infratech which was accepted by the NCLT.
If no turnaround has been achieved, the real estate firms assets will be liquidated and sold off to recover the money. The money will first be distributed to secure creditors like banks. The remaining money will then be distributed to unsecured creditors like you and other homebuyers.
2. Can the Government protect you from errant builders
The NCLT has started insolvency proceedings against Jaypee Infratech. More than 40,000 home buyers are stuck in incomplete projects of this Company. There could be more builders out there who could be bankrupt. So can the Government protect your dream home?
Builders cannot escape their obligations under RERA, just by declaring themselves bankrupt. If the builder who is registered under State RERA, is found to be breaking rules under RERA, he will be punished. If you (buyer) complain against this builder, strict action will be taken against him.
Even if a builder opts for bankruptcy, the Government will monitor the cash flow of his real estate firm. The Government will ensure the project is completed by the builder/developer or a third party finishes the job. Finance Minister Arun Jaitley said "our full sympathy" is with the aggrieved home buyers. This assures you the Government is going after errant and unscrupulous builders.
You must be curious to know what has happened to the buyers who booked homes with Jaypee Infratech. The insolvency resolution professional (IRP) handling the Jaypee Infratech case, has ruled out the possibility of home buyers getting refunds. But, the IRP has given an assurance that all efforts are being made to ensure the continuation of the project.
Yes, you need that dream home badly, but do make sure your builder is registered under the State RERA. This could save you from a lot of hassles at a later stage.
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Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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