Real estate accounts for 19% of insolvency recoveries in India: Report

Real estate makes up approximately 19 per cent of the total recoveries from insolvency proceedings in India, as revealed in a recent report by Anarock and Khaitan & Co.

Initially, the real estate sector accounted for over 50 per cent of the total recoveries under the IBC. However, following the submission of an appeal to the NCLAT, a significant case went sub-judice, causing the real estate sector's contribution to drop to 18.8 per cent, as per data from IBBI.

Insolvency case trends

Shobhit Agarwal, MD and CEO, Anarock Capital, noted that the number of corporate insolvency resolution process (CIRP) cases filed has increased from an average of 208 per quarter in FY22 to an average of 313 in FY23. However, the beginning of FY24 saw a slow start with 238 cases admitted in the first quarter. Real estate CIRPs averaged around 18-20 cases per quarter from October 2021 to December 2022 but spiked to 44 cases in March 2023.

Sudip Mullick, Partner at Khaitan & Co, emphasised that the CIRPs of real estate companies have risen in recent quarters. Positive outcomes in these ongoing CIRPs are crucial for instilling confidence in homebuyers.

Government's NCLT appointments

Kumar Saurabh Singh, another Partner at Khaitan & Co, highlighted that one significant factor causing delays in insolvency resolution is the high number of vacancies in the NCLTs. To address this issue, the government has appointed 21 new members, bringing the bench strength closer to the sanctioned number of 63.

According to Mani Gupta, Partner at Sarthak Advocates & Solicitor, as of June 2023, there were a total of 6,815 insolvencies admitted, with around 21 per cent (1,431 cases) related to the real estate sector. As of June 2023, approximately 41 per cent of insolvency cases in the real estate sector have been resolved.

Gupta also noted that insolvency resolution in the real estate sector remains complex, largely due to the composition of the committee of creditors, which primarily consists of homebuyers. Unlike banks and financial institutions, homebuyers often struggle to grasp commercial intricacies. Recent legislative changes affecting the role of authorised representatives for creditors may lead to more streamlined decision-making by homebuyers.