Govt comes out with ‘relief policy’ for defaulting builders

Having burnt its fingers in trying to recover outstanding external and internal development charges (EDC and IDC) amounting to about `13,000 crore from developers, government has now decided to make it mandatory for developers to mortgage a percentage of their saleable property with the government, depending on the dues they have.

Having burnt its fingers in trying to recover outstanding external and internal development charges (EDC and IDC) amounting to about `13,000 crore from developers, government has now decided to make it mandatory for developers to mortgage a percentage of their saleable property with the government, depending on the dues they have.

EDC is used for funding basic infrastructure projects such as roads, water, sewerage and drainage lines. IDC finances capital intensive projects such as metro, pod taxi, etc. (ABHINAV SAHA/HT File Photo)

EDC is used for funding basic infrastructure projects such as roads, water, sewerage and drainage lines. IDC goes to financing capital intensive projects such as the metro, pod taxi, etc.

The government would sell the mortgaged property in case the developer fails to pay the outstanding charges in four instalments -- as per its new “relief policy”.

The policy applies to developers seeking licences for future projects as well.

“The government wanted to be sure of getting its dues and avoid hampering infrastructure projects in future,” said Arun Kumar Gupta, the additional chief secretary, Town & country planning department.

“With the new relief policy in place, we expect to collect `9,000 crore in EDC and IDC dues,” he said.

“Mortgage of land is a new clause. Earlier, developers had the option of offering a bank guarantee to the government in lieu of the outstanding amount. But now they will have to mortgage land with us and the same can be sold if the developer fail to honour his/her commitment. Liquidating a bank guarantee was not that easy as developers would often get stay orders from the court. Moreover, the banks were the only beneficiaries as they would keep earning interest,” Gupta said.

Taking into account the slump in the real estate market, the state government has offered to accept EDC and IDC in four half-yearly instalments. The developers will have to deposit about 10% of the amount immediately along with the application.

“The builders will have to clear all outstanding charges within two years,” Gupta said.

Developers, however, are apprehensive about the new policy. They said it would favour more those developing new projects as they would have clear title or ownership deed for the properties. The government will accept only properties with clear title deeds for mortgage purpose, they said.

Parveen Jain, the president National Real Estate Developers Council and CMD Tulip Infratech, said it is yet to be seen whether the policy will be “practical”.

“The new policy states that developers may not be able to offer properties with clear title without third party rights for mortgage as they must have sold the same in full or part. The government may have to amend the policy to allow developers to mortgage another property with clear title. The policy in the present form may partly succeed but not fully,” he said.