SC bats for the ordinary punter in argument between lenders and real-estate developers
The first decade of the of 21st century will be always be remembered in the India as the time real estate boomed. In towns across India, property prices soared, and where there were once verdant fields of rice or wheat, ugly mono-block buildings packed together in impossibly tight configurations came up. Advertising revenues from real-estate developers poured into the media and outdoor display spots. The advertisements promised quick deliveries and a fancy lifestyle. Forget just Indian celebrities, even foreign celebrities like race driver Michael Schumacher and tennis star Maria Sharapova lent their names to developments, and one development in Mumbai even licensed the ‘US Open Tennis’ championship name and logo, others around Delhi licensed the Disney princess theme. And no area highlighted the crazy attitude of builders more than the stretch of land to the south-east of the capital between Noida and Greater Noida.
Jaypee Associates, one of the real-estate developers in the dock right now after its insolvency proceedings have been challenged by homeowners. The company wanted to build an integrated sports city on the Greater Noida-Agra Expressway which a group company developed. The centrepiece of this plan was the Formula 1 capable racetrack, the Buddh International Circuit that today looms as a gigantic white elephant over the flat western Uttar Pradesh landscape. The developers never managed to recoup the huge investments they made for the racetrack, hobbled by a Government that did not consider motor racing as a sport and the massive licence fees paid to the promoters of the event, the racetrack was supposed to entice buyers to buy apartments that would offer, at best, a distant view of the track by promising owners a view of the race. But Greater Noida is no Monaco. And when the Indian Grand Prix died a natural death after three seasons with pitiful crowds towards the end, the racetrack became the plaything of Delhi’s rich and then too barely covered its costs. The apartments that promised a view of the racetrackIJ Many of them are in various stages of construction, some have been completed others yet to be started. But buyers are not taking the developer to court for not fulfilling their promise of a ‘race view’ — they want the developer to deliver on the flats.
The problem is however, India’s new insolvency laws. The laws are meant to allow a proper system to be set in place when a company goes bankrupt in order for creditors such as banks not to lose everything. But in the case of real estate developers, many of whom ran nothing but glorified ponzi schemes raising money from the public and banks to fund glamourous lifestyles. But when the bottom fell out of the market when the public got wise to the lies of many developers, many were left with huge loans to repay, and unfinished projects. The insolvency laws put secured loan creditors at the top of the pile when it comes to repayment, but the banks want to have it all their way. Few banks have been sympathetic with home loans of consumers whose homes are far from complete. On this front it is good that the SChas stepped in to protect the ordinary home buyer, who is not an ordinary creditor. The balance sheets of Indian banks do need to be saved, but it cannot and must not be at the cost of the home buyer. The Finance Ministry and the RBI need to come up with a work around to ensure the rights of homeowners are protected.