SC order to reduce interest rate on land dues a setback for Noida, Greater Noida authorities

The Supreme Court order that the Noida and Greater Noida authorities should charge only 8% interest on default payments of housing land dues instead of the existing

The Supreme Court order that the Noida and Greater Noida authorities should charge only 8% interest on default payments of housing land dues instead of the existing 15-23% will negatively affect their financial health, said officials of the two industrial bodies, reacting on the Wednesday order of the apex court.

HT Image

The landmark order, however, has made real estate developers happy as it would considerably lessen their debt burden. The real estate sector in Delhi-NCR has been reeling under huge financial pressure due to the economic slowdown and the losses incurred due to the imposition of the national lockdown to stop the spread of coronavirus disease (Covid-19) pandemic.

The Noida and the Greater Noida authorities, which together need to recover a sum of at least ₹30,000 crore in housing land dues from the developers, will have to bear huge financial losses if this SC directive, which capped the interest rate at 8%, is implemented. The SC order came after a Noida-based developer, ACE Group of companies, filed a petition, arguing that, if as per the marginal cost of funds based lending rate (MCLR) revised by the Reserve Bank of India (RBI), the interest rate has been capped at 7-8%, then why are the Noida and Greater Noida authorities still charging exorbitant interest rates on outstanding of financial dues.

Reacting to the order, the chief executive officer of Noida Authority, Ritu Maheshwari , said, “We are seeking a legal opinion about the Supreme Court order.” The Noida authority spends around ₹2,000 crore annually on the maintenance of civic services. After this order is implemented, the civic amenities may be severely impacted as the authority will face huge monetary losses, said Maheshwari.

The other industrial body of the area, the Greater Noida authority, said that the authority owes ₹7,000 crore in debt from different institutions. The SC order will pose a huge financial challenge for the authority to deal with. The Greater Noida authority, which spends at least ₹1,000 crore on civic amenities annually, may be affected as the revenue collection from the developers will come down drastically after the implementation of this order.

“We have asked our legal department to examine the order so that the further course of action can be decided,” said Narendra Bhooshan, CEO, Greater Noida authority.

The two authorities have allotted housing land after accepting 10% of the total land cost. The developers are supposed to pay the remaining 90% of the land cost in instalments. The two authorities are supposed to charge 11% interest rate on land dues. In case a developer fails to repay his land due instalments on time then the two authorities have been mandated to increase the interest rate. In cases, where the developer repeatedly defaults on payment of land dues, the rate of interest can go up as high as 23% and can keep on increasing.

The ACE Group, in its petition, argued that the Noida authority is demanding an additional charge of ₹600 per square metre, while the Greater Noida authority is demanding an additional charge of ₹1,700 per square metre in order to repay the additional compensation to farmers for the plots alloted between 2010 to 2015. It said that due to recession, homebuyers could not pay up the extra cost and thus they are unable to bear the additional financial burden the high rate of interest.

Meanwhile, Noida- and Greater Noida-based developers welcomed the order, saying that it revive the stalled housing projects, which were facing financial issues.

“The order will help the market to pick up. The basic problem was that the exorbitant rate of interest made most of the projects economically unviable. As a result, no bank was ready to fund these projects. Once the order is implemented, it will revive the real estate sector and many stalled projects will be delivered to homebuyers,” said Getambar Anand, ex-national president of Confederation of Real Estate Developers Association of India (CREDAI), a builders group.

The developers also said that two authorities will now restructure their outstanding of the land dues.“Once the Noida and Greater Noida authorities restructure their land cost dues and reduce the same it will make most of the stuck realty projects viable. It will help the developers to seek funding from banks and it will help the developers to deliver at least 1 lakh flats soon,” said RK Arora, president (Uttar Pradesh) of the National Real Estate Development Council (NAREDCO), a realtors group.