SC bars construction work in SWM-failed states across the country

States that have missed the boat to formulate their respective solid waste management policies are going to have a harder payback this time.  On this Friday, a bench of Justice M B Lokur and Justice S Abdul Nazeer issued a strong writer order against these states and UTS.

What is there in this order?

The order sets the barricade around the upcoming and on-going construction works across these states and UTS which have failed to formulate their solid waste management (SWM) under the Solid Waste Management Rules 2016. These states are not allowed to commence their construction works until they codify their SWM policies.

How does it act on the states’ revenue?

It seems that states have been either delaying or chose to remain unresponsive after the release of the order back in the year 2016.
Now if states continue with the same limp demeanour, it will definitely bruise the revenue of the state from the real estate sector.
At present, it also takes a toll on the modus operandi of the very section as well.
What are the consequences that the real estate sector has to accost?
Sometimes well-meaning plans can bring undesired opposite results. We have seen this in the recent past when the country had to go through a severe cash crunch post demonetization when the mean objective was to eradicate the black money circulation in the credit flow. Common people had to suffer a lot and real estate was one worst-hit sector in those days.
SC has prohibited construction works in states and UT’s including Maharashtra, Madhya Pradesh, Uttarakhand, Chandigarh and Goa for their “pathetic” attitude in not framing proper policy on solid waste management without speculating the aftereffects.
“People have already spared enough strolling along with the free will of developers and realtors. After RERA came into the frame, they finally gained the relief of faith that their hard-earned money won’t get lost in the whirl as they permanently received a legal platform where they can lodge the complaint against the counterfeit activities of the real estate state holders. RERA also brought up the assurance that the project deliverance would be on-time along with the quality check. The recent order of the Apex Court is challenging the regulations of RERA in a straight line,” said Mr Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India (east zone) and Vice President of RECA Kolkata.
“If the construction work gets halted somehow, how would the homebuyers get their project delivered within due time maintained under RERA rules where this time they can’t even blame the developers for the delay? The recent speculation would further add to their troubles, where states have chosen to stand by the order of the Supreme Court on its banning on construction activities in the states unless any solid waste management policy has been settled. This move of the states would certainly take a dig on the shield of buyer protection ACT RERA and buyers will be highly in doubt about the actual functionality of the ACT,”- added Mr Somani.
Of course, sanitization is crucial; states should definitely come up with a proper policy of the same. Meanwhile, banning of construction works happens to be a dry run for the effectiveness of the RERA regime. Let’s see how the states RERA Authorities deal with the situation.

What made real estate developers file writ petition against GST council? (An industry update)

A group of real estate developers of Maharashtra recently moved the Bombay High Court against the Goods and Services Tax (GST) Council, central, and the state government of Maharashtra of late.

As per the latest industry reports, the prime reason behind dragging the central, state government, and the GST council is the applicability of GST on mere transfer of land development rights by the owner to a realty developer.

To be more specific, real estate developers challenged a recent notification which made the transfer of development rights from the land owner to the developers taxable under the revised tax regime.

In a notification published in January 2018, GST council mandated that if any construction work falls under the Joint Development Agreement (JDA) category, wherein a landowner transfers the land to a developer and gets apartment, a certain amount of revenue or a combination of both in return; GST would be levied on both the land owner and the real estate developer.

“In the past, such transactions were exempt from the tax system. Now, that the revised tax regime has been already in force, any real estate transaction under JDA will come under GST ambit and it will seek tax payment from both of the consignees, where the entire land transaction has already been kept out of the GST purview; thus situation is a bit tricky here,”- said Mr. Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India (NAR-India).

Starting from the advanced lawsuit, till the unified tax regime – nothing is going in favour of real estate developers. Tax experts consider that with this new notification of GST, it will add to the cost pressure on realty developers even bigger; as such transactions would get slower and complex credit generating process under GST. Again, for this taxability, the acquisition of land will turn to a complex process for the developers as it won’t be easy to settle the consideration with the land owners abiding the new rule.

On the other hand, the government claimed that in most of the cases, real estate developers give apartments to the land owners after the completion of the project which is nothing but consideration for the transfer of the project rights; therefore it shouldn’t be free from the GST purview.

However, the Bombay High Court issued notice to the Union Government of India, state of Maharashtra and GST Council and the next date of hearing is decided on July 9, 2018.

According to the industry experts, GST council has come to this conclusion, considering the rising trend of joint venture agreement between land owners and the developers as these ventures don’t fit in the outright land deal kind. While developers are game for JD ventures for their ease-of-investment business strategy, land owners are up for higher return on investment (ROI) prospect than just one time consideration.

Builders might have to retaliate up to Rs. 20,000 crore in accordance with new accounting rules: (Industry insight)

A life-size wave is all set to bump on the realty builders. As per the wandering industry reports, the implementation of a new accounting standard from this fiscal (starting from 2018) will compel the listed real estate companies to write back profits, that have been consummated from all those projects under completion more than a year now.

This could be another socking line of attack to greet those real estate companies which have been reeling under insolvency code for the past few years or more. However, reports suggest that developers have already submitted their request in written to the government, seeking relief.

Conforming to the global industry standard, IND-AS 115 (new industry standard) mentions that all listed real estate companies will have to write back about Rs. 20,000 crore from their net profit of the current fiscal. The new industry standard started rolling since last April of this fiscal.

Real estate companies will have to run after their project completion with best of their efforts. They will have to switch to Project Completion Method from the existing Percentage Completion Method (POC).

Under the earlier regime, the booking amounts received from the home buyers for under construction projects, used to be shown as yearly turnover and the net income generated from those projects were regarded as gross profit by the builder companies.

Under the revised norm, the amount home buyers would pay towards an on-going project, would be treated as ‘advances’/ ‘loans’; but certainly not as income from sales. The developers have to write back the profit booked till date on all on-going projects that are not fully completed under the new norm.

A recent analytic report published by the ICICI Securities said, “This would happen in the first quarter on a retrospective basis and would lead to a hit on the net worth and lead to a temporary spike in companies’ debt-equity ratio.”

In a submission to the ministry of corporate affairs the National Real Estate Development Council (Naredco) said, “Any change from Percentage of Completion (POC) accounting to accounting on Completion of Project would have a very significant revenues and cost reversal as at the opening balance sheet and re-recognition of the same in ensuing period.”

This new industry standard is expected to impact on the credit rating part. Starting from the revenue generation to the net profit – every calculation will be under the finest institutional radar. This will not only have a direct outlook on the debt-equity ratio of the companies, but also restrict the borrowing capacity of the companies too.

Alike DLF and Lodha Group, many other leading real estate builders have kept their mum on this new industry standard and profit calculation part in amalgam.

“Real estate sector in India has been witnessing one after another massive changes during these past 3 years. Under these significant changes and stringent framework, there is no way a builder can escape from the ethics and the industry standards for his survival and sustenance, in the present market scenario. This change in particular, will definitely have a big bite on the revenue generation of the builders and also will give rise to higher tax outflow,” said Mr. Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India.

-By LNN (Liyans News Network)

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018: Home buyers will be acknowledged as tenable financial creditors.

June 6, 2018- a memorable day indeed from the home-buyers’ perspective. In its recent ordinance to amend the Insolvency and Bankruptcy Code (IBC), the Government of India has declared that henceforth home-buyers in ailing real estate companies would be recognized as financial creditors in the resolution process.

Corporate affairs secretary Injeti Srinivas confirmed that the ordinance would be one prime instrument for every single home-buyer to approach the National Company Law Tribunal to commence insolvency proceedings against a realtor. Based on the signed agreement between the buyer and the seller, if the real estate company goes under water, buyers will have to prove themselves as legitimate creditors in order to claim their rights as lenders.

The rules regarding buyers’ representation is soon to be published. As per the officials, there will be two agreements in some of the states in India; one for the land and the other for the house.

An official statement said: “The Ordinance comes as a significant relief to home buyers by recognizing their status as financial creditors. This would give them due representation in the CoC and make them an integral part of the decision-making process.”

Asking about the impact of this ordinance on the business of reality esp. on the home-buyers, the Chairman – National RERA Committee, National Association of Realtors, India, Mr. Mahesh Somani said, “This is undoubtedly a great move by the government to boost the morality of the home-buyers. Over the years buyers have been hackled by the realty stake holders in terms of deliverance and quality assurance. This one recognition will set them on a par with the banks during the proceedings.”

“Projects like Jaypee, Amrapali and many more that have reeling under the insolvency proceedings, with this secured financial creditor tag, respective home-buyers can now claim their interest during the resolution process and banks will ensure that in no way it would be compromised,” –  added Mr. Somani.

-By LNN (Liyans News Network)

Active Participatory Role Of Homebuyers In Making Decisions About Insolvency Proceedings Of Real Estate Companies

Homebuyers might be considered as commensurate with the unsecured financial lenders at insolvency proceedings for real estate companies. With the implementation of this new rule, a bulk of the suffered homebuyers, left in the lurch for the compensation from real estate companies such as- Unitech, Jaypee Infratech, and Amrapali and reach a conclusive and of course a favorable speck.

A committee with the task allotted for reviewing the Insolvency and Bankruptcy Code (IBC) and under consideration by the government has made this suggestion, confirmed by a couple of senior officials tuned in with the buzz. With the resolution passed, the interest of all the stakeholders will be equally treated.
People who had invested in Amrapali and Jaypee Infratech projects are left in trouble after they failed to clear their dues. Apart from this, the ministry of corporate affairs has moved the bankruptcy court to ride herd on realtor Unitech.

In order to regulate recklessness of these companies, a 14-member law committee has been constituted to identify facts that “impact the efficiency of the corporate insolvency resolution and liquidation framework” and come up with recommendations to deal with them.
“A proposal is actively considered to give homebuyers a status of unsecured financial creditors,”-said one of the officials.

According to the official sources, the committee is likely to present its recommendation along with draft amendments to the IBC towards the end of this month. With the adoption of this recommendation, homebuyers will have a say in the insolvency proceedings and can be an active part of the committee of creditors. It will also empower them with the voting rights on the resolution plans.

The current IBC norms foster a waterfall financing-eight levels for the order of distribution of proceeds from the sale of liquidated assets among stakeholders. After the settlement of the resolution professionals and administrators, next come financial creditors and workmen’s dues, followed by unpaid dues of other employees except for the workmen. Then comes the unsecured financial creditors, followed by government dues and equity shareholders. Homebuyers are currently the last in the distribution list of the developers.

“The proposed amendment will provide homebuyers a higher spot in the IBC proceedings, as they will be one determinative voice in the resolution plan as well. Homebuyers will share the same base with the financial creditors,”-says, Mr. Mahesh Somani, Chairman- National RERA Committee, Head- East Zone, National Association of Realtors India (NAR).

As per the statistics, about 31,000 homebuyers of Jaypee Infratech and 41,000 of Amrapali’s Silicon City project have moved the Supreme Court and appealed that they should be treated in a class with financial creditors. To protect the interest of the homebuyers, the Supreme Court ordered the promoters of Jaypee Infratech not to sell personal assets and deposit Rs 2,000 crore with the court.

Similarly, Amparapali was ordered to submit a plan to deliver possessions. In the case of Unitech, 19,000 homebuyers have accused the company over fund diversion and appealed to the corporate affairs ministry and finally, the case is under National Company Tribunal Law under the Companies Act. The Supreme Court has stayed the move following an appeal by Unitech.

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