Restore the trust of Mr Biswas: Homebuyers in distress are crying out for help

Though the contribution of the real estate sector in meeting the housing needs of society has been significant, it is estimated that the aspirations of lakhs who signed contracts and made payments to buy a house have been bogged down in a quagmire of unfinished projects, insolvencies, allegations of fraud, diversion of funds and prolonged litigation. The confidence of homebuyers has been eroded.

As reported, Union housing minister Manohar Lal Khattar recently articulated the frustration of thousands of homebuyers while admonishing the National Real Estate Development Council (Naredco), an association of realtors that functions under the ministry’s aegis. If a project goes to the National Company Law Tribunal, he observed, the chances are it will never get completed.

Striking a similar chord, the Supreme Court, in its judgement of 12 September 2025 on the Manasi Brar case, pronounced shelter a fundamental right and protection of homebuyers a constitutional obligation of the state. The apex court highlighted the stark reality faced by homebuyers who, after investing their lifelong savings, are compelled to service EMIs on loans and also pay rent for accommodation while their ‘dream home’ languishes unfinished and undelivered.

Reiterating the constitutional obligation to create and enforce a framework under which no developer defrauds or exploits homebuyers, the court issued several directions. These included a nudge to frame specific guidelines for insolvency proceedings in real estate cases, devise a mechanism to hand over possession to allottees, and resolve real estate insolvency on a project-specific basis rather than treating the entire corporate debtor as insolvent.

A proper perspective of the situation would lay a solid foundation for further legislative and administrative responses. The Insolvency & Bankruptcy Code (IBC) treated homebuyers as operational creditors, not financial creditors (FCs), thus subordinating their claims to the latter’s, until an amendment and Supreme Court ruling in 2019 accorded them the status of FCs.

Yet, even this watershed change in status has not created a level playing field. To protect the interests of homebuyers, we must understand the disparities in this market. Homebuyers do not invest for earning interest, but getting a home. They do not have the security of collateral and personal guarantees available to lenders, which often have board positions in real estate companies.

The exposure of banks to a project is only a small percentage of their credit portfolio, but for homebuyers, it is their lifetime savings. Insolvency haircuts for lenders is a credit risk.

For homebuyers, in contrast, a haircut can be financially catastrophic. Institutional lenders have several ways to monitor borrowers, including through financial statements, audit reports and participation in board meetings and managerial decisions.

Homebuyers, generally scattered across different geographies, have no such access. As they are not organized, they are prone to the divisive tactics of realtors. Moreover, homebuyers lack the financial muscle for expensive and prolonged litigation.

The disadvantaged position of homebuyers warrants separate IBC regulations that are focused on protecting them. The Supreme Court’s judgement holds that real estate insolvencies must be resolved on a project-wise basis. A clear distinction must now be made between the resolution of realty projects and that of a real estate company.

A housing project is resolved once it is completed and homes are handed over. The IBC focus must therefore shift to completing projects and handing over possession. This alone will protect the interests of homebuyers, not the usual process of liquidation in case no resolution is found under the IBC. Unless the legal framework reflects this distinction, homebuyers will continue to suffer.

Given the nuanced difference between the resolution of a stalled project and of a corporate entity, efforts must aim at eliminating impediments to the expeditious completion of projects and ensuring that allottees get the residences they signed up and paid for.

This must include clear legislative directions to state authorities. For example, the latter must not withhold completion or occupation certificates on considerations such as the realtor’s pending dues. Homebuyers are not responsible if a realtor has not paid its dues, as held by the Allahabad high court in Milanka Choudhury vs. State of Uttar Pradesh. State authorities should pursue their dues bilaterally with builders.

Realtors sometimes land in insolvency courts for failing to repay loans. As real estate projects are largely funded by homebuyers, they typically only need loans for working capital. So indiscriminate borrowing by builders should be regulated. Loans should be permitted only against their net worth, not by mortgaging projects. Further, if borrowing is permitted on a project’s mortgage, it should only be for its completion. Homebuyers are the project’s real owners, not the real estate company.

While state-level Real Estate Regulatory Authorities (RERAs) may be on a learning curve, the trust or vishwas of homebuyers rests on their approvals and monitoring of projects. As per the Reserve Bank of India’s latest Financial Stability Report, 18% of total insolvencies are in real estate and construction. RERAs must be empowered to play an effective role, for which they must undertake rigorous evaluations of project viability and monitor them closely until delivery.

In Naipaul’s novel, Mr. Biswas finally succeeds in building his house and plants laburnum for this flower’s fragrance to fill it. A homebuyer-centric regulatory framework could revive the vishwas of homebuyers and turn the realty sector fragrant.

The authors are, respectively, former chairman, Sebi and LIC, and former deputy comptroller and auditor general.