Reduced interest rate on land dues to benefit homebuyers and developers: UP RERA

NEW DELHI: The Uttar Pradesh Real Estate Regulatory Authority (UP RERA) has asked the state government to direct development authorities to charge interest on land dues at Marginal Cost of Funds based Lending Rate (MCLR) of SBI.

Developers have pending dues of about Rs 40,000 crore to three different authorities in NCR as part of land dues since 2010 but the amount is likely to reduce to Rs 25,000 cr as per new Interest Rate.

The move will fast track the delivery of flats to lakhs of homebuyers in the state as authorities were not giving occupancy certificate till the dues are not cleared.

“The move will also give an opportunity to private equity and alternative investment fund to acquire properties in UP since developers will be looking for immediate financing to clear dues. In coming days we will see, funds taking over projects, which was not possible earlier because of high amount of dues to the authority,” said Anckur Srivasttava of GenReal Advisers.

In the recommendation, UP RERA has said the dues should be recalculated as per the revised interest rate and 25% of it should be paid within three months and entire payment should be made within a year.

“Following the SC order to levy interest in line with MCLR, we have recommended the state government to issue fresh order for the same for all the development authorities of the state. This will benefit the authorities also, as they will be able to recover the dues within a year,” said Rajive Kumar, chairperson, UP RERA.

According to the developers, interest on land premium is charged at 12% + 3% (compounding half yearly) which effectively comes to 22 to 24%.

“Projects that could not be delivered earlier, will be fast tracked. The high interest rate lead to default by many builders and as a result they could not get the completion certificate from the authority. The homebuyers were unable to get the possession without completion certificate,” said Manoj Gaur of Gaurs group.

As per the recommendation, interest on land dues before 2010, should be charged at 12%, between 2010 and 2016, it should be charged at 9.35% and post that as per MCLR rate which hovered around 8%.

“Some developers have dues upto Rs 500 crore and reduction in interest is a big relief to developers as it will help us to timely delivery to homebuyers. The money, which used to go to the authority due to high interest, can now be used to complete the project,” said RK Arora president of UP chapter of the National Real Estate Development Council (NAREDCO).

As of July 2020, there were 53,364 real estate projects registered under RERA across the country, while in UP, that number stood at 2,818.

“It is a positive step by UP-RERA to move the projects towards completion. Many stuck or borderline distressed projects will be made viable again by this move,” said Pankaj Bajaj, President, CREDAI-NCR.

This will also benefit state-run NBCC, who are executing stuck project of Noida-based Amrapali group and have to pay dues in excess of Rs 5,000 crore. According to Prashant Tiwari, chairman, Prateek Group, wait for the homebuyers will get reduced by this move significantly.