Real Estate Insolvency Framework Requires Project-Centric Shift: Report

New Delhi, Strengthening India's real estate insolvency framework needs a fundamental shift from entity-level resolutions to a project-centric model that prioritizes the completion and delivery of homes, a report said on Friday. The report from ICRA called for strengthening coordination between the Insolvency and Bankruptcy Code, 2016, and the Real Estate (Regulation and Development) Act, 2016, to achieve this transition.

The Committee on Framing Guidelines for Insolvency Proceedings in the Real Estate Sector submitted its report to the Insolvency and Bankruptcy Board of India earlier this week. The report highlighted the need for a shift from an entity-centric, recovery-focused framework to a project-centric, completion-driven approach with stronger coordination between both laws, said Manushree Saggar, Senior Vice President and Group Head, Structured Finance, ICRA Ltd.

While the real estate sector has the second-highest share in cases referred under the IBC, real estate insolvency also presents unique challenges, as it has a higher social cost and directly affects large numbers of homebuyers. Hence, project completion and delivery of homes is a more desirable outcome than financial recovery, Saggar noted.

The report highlighted 55 key issues affecting real estate insolvency and has made 155 recommendations, covering structural, procedural, and institutional aspects of the framework. These recommendations are aimed at improving efficiency, ensuring timely completion of projects, enhancing stakeholder confidence, and strengthening alignment between insolvency processes and sectoral regulation.

They seek to harmonize insolvency law with real estate regulation, judicial guidance, and constitutional values, ensuring that the Code functions as an instrument of resolution rather than prolonged uncertainty. In ICRA's opinion, better alignment between insolvency processes and real estate sector-specific regulations could improve efficiency and enable timely completion of projects, which in turn would enhance stakeholder confidence.

Ongoing and resolved insolvency cases together affect nearly a quarter of a million homebuyers, translating into housing insecurity for close to a million individuals when household size is considered. This highlights the urgent need for a more effective and project-centric insolvency framework in the real estate sector.