The Cabinet’s approval to treat homebuyers as money creditors beneath the economic condition and Bankruptcy Code 2016 (IBC) is probably going to administer a lot of protection to property patrons and boost client confidence, say specialists Pankaj Bajaj Eldeco, President, CREDAI NCR claims:

“It is a good move for the protection of the money of homebuyers. RERA protects the money of buyers in an ongoing concern. Now the buyer’s investment is protected even in the case of insolvency. This will instill a sense of confidence amongst buyers of under construction property. However, for a continued flow of institutional and bank credit to the real estate sector, the system must uphold the superiority of a bank mortgage over any other claim otherwise banks may become hesitant in lending to this sector.”

Homebuyers were to date treated as operational creditors and got the smallest amount of priority within the method of liquidation of a defaulting builder when money creditors cherish banks. However, once the planned changes area unit incorporated within the IBC, homebuyers can have the proper to initiate a resolution method against builders to induce their refund, a bit like money creditors.

Buyers will now have some guarantee or something to fall back upon as the case may be accordingly if they are treated as financial creditors. Rating agency India Ratings, however, opined that this amendment could be credit negative for the lenders of real estate developers since the recovery proceeds will now have another layer of distribution, which was not factored in at the time of giving the loan to the builder. This might effectively increase the realized haircuts for the financers. In alternative words, while there might not be changes in the likelihood of default, loss given default (LGD) may increase for the financiers

Housing finance corporations may get some comfort as buyers' rights over a defaulting builder and money flow on liquidation can enhance. Eventually, with increasing client confidence there'll be a lot of takers for home loans within the country, benefiting housing financiers.