IBBI's New Reforms to Streamline Property Insolvency and Protect Homebuyers

Proposed on November 7, 2024, the latest reforms by the Insolvency and Bankruptcy Board of India (IBBI) are set to offer significant benefits to homeowners by updating the insolvency procedures for real estate firms. These reforms specifically target the widespread issue of prolonged delays in property handovers to buyers.

Key amendments to the Insolvency and Bankruptcy Code (IBC) include ensuring the timely delivery of properties, enhancing the accuracy of claim evaluations, and improving the transparency of the insolvency process. A significant aspect of these changes grants insolvency professionals the authority to transfer property possession or ownership to those homebuyers who have completed their financial commitments, subject to the committee of creditors’ (CoC) approval.

The proposed reforms are a concerted effort to rectify the systemic shortcomings within the existing real estate insolvency framework. By aligning the interests of homebuyers, creditors, and developers, the changes lay the groundwork for a more secure, transparent, and equitable housing market.

To maintain transparency and combat misinformation, the amendments will allow homebuyers access to the CoC meeting minutes via a secure online platform, ensuring they are well informed about the progress and status of their property investments.

The suggested reforms also tackle important issues for lenders and financial creditors. The inclusion of land authorities, who play a vital role in real estate projects, as non-voting guests in CoC meetings is a key feature of these measures. Their contributions to regulatory aspects are anticipated to enhance the feasibility of resolution plans.

Additionally, the reforms stand to benefit real estate developers by removing regulatory obstacles and incorporating land authorities in CoC discussions. This should lead to better completion rates of projects and help restart many that have been halted. Setting a standardized 8% annual interest rate for claim valuations will also ensure a more equitable representation of homebuyer claims within the insolvency framework.

While there is widespread support for these reforms, homebuyers have voiced the necessity for protections to address the extra costs and adjustments needed to finalize their properties. These factors need to be considered in the overall pricing agreements.