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Realty players fear recall of SC’s interest rate order may hit firms

10 Nov , 2022   By : Monika Singh

Realty players fear recall of SC’s interest rate order may hit firms

Real estate developers in Noida and Greater Noida fear the recall of a Supreme Court order of 2020, which capped the interest rate at 8% for delays in payment of land costs by the builders to the authorities, will push many more developers into insolvency. 

According to some estimates, 100 projects in Noida and 90 in Greater Noida will be impacted as a result of this order, and the pending penalty and compounding interest figures could be to the tune of Rs 6,000-7,000 crore, said Manoj Gaur, president, CREDAI-NCR. 

The Supreme Court on Monday recalled its June 2020 order capping interest payable by builders to the Noida and Greater Noida authority at 8% and clarified that this benefit would apply only to Amrapali projects, being constructed by state-owned NBCC since July 2019.

According to the authorities, the 2020 SC order had directed that interest on various liabilities would be levied based on the SBI’s marginal cost lending rates (MCLR) on the first day of 2010 rather than rates specified in lease documents. However, the authorities had filed for a review of the order on the grounds that there were heavy financial implications on them.

The two authorities peg their total losses as a result of the previous order at over Rs 19,300 crore, with about Rs 12,800 crore for the Noida Authority and `6,500-odd crore for the Greater Noida Authority, with regard to group housing.

According to Gaur, it is not the interest or the principal due which is a worry, but the penal interest that is compounding monthly. “The compounding rate of interest is so high in Noida and Greater noida as it goes upto 23-27%,” he said.

Gaur explained that the RERA (Real Estate Regulatory Authority) prescribes an interest rate of 8% MCLR that a developer, or the customer, can charge in case of outstanding dues on either side. “Similarly, authorities are also qualified as developer under RERA law. So our view is that since RERA prescribes a rate of interest of 8%, how is it that the authorities are charging 23-27% interest?” he said. 

He added that the developers have also been clearing their principal and interest levied at 11% as per the lease agreements, but the issue of piling up of compounding interest is posing a challenge for developers.

While the apex real estate body is awaiting the receipt of the final order, Gaur said that the authorities must consider a one-time settlement scheme with the developers, as has been done in the state of Haryana on a similar matter. 

“Haryana authorities have come out with a one-time settlement scheme under guidance of the central government. Under the OTS scheme, they have made the penal interest zero and reduced the main interest by 75%. Most of the developers in Haryana have deposited all the money, and a similar approach is required here too,” he said.

Prashant Thakur, senior director & head (research), ANAROCK Group, said that while the Supreme Court’s decision of recalling the 2020 order for developers seems to have put a massive financial burden on the developers in the NCR, the developers had two years to clear the dues. “If this order had not been recalled, the developers would have been in a better financial position, nonetheless, amidst a better market, things are certainly looking brighter today. With improving sales, the developers are better placed today to honour dues to the authorities,” he said.

According to ANAROCK, in 2020, 23,200 units were sold in the NCR, which increased to 40,000 units in 2021, and in January-September 2022, the region has already sold over 49,000 units.

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