RERA fear creates a storm among the PE firms and strategic investors

Many private equity companies as well as strategic investors who have invested in budding real estate projects are plucking their contracts with the developers frightening the lawsuit and penalty once the RERA comes into actions. The fear is that under RERA act they can be trademarked as developers and consequently they might have to confront strict punishment for any infringement of rules by the project they sponsor. Under RERA the promoter will be in charge of any conformity. Developers, landlords, private equity or even strategic investors will be falling under the RERA terms if they are actively involved in the project.

As a matter of fact many investors, strategic as well as private equity companies could be considered as promoters and have to carve up compulsion under RERA if things go tart. As a result many investors are now trying to mitigate their roles in the previous contract or trying to tune up agreements so that if any legal case or penalty they developer would face that or to some extent according to the contract at least obligations can be reassigned to the developers. As per the sources the arbitration between developers and investors has already commenced. To safeguard themselves the investors are either trying to alleviate their active involvements or putting additional clauses in the contracts whereby their legal responsibility would decrease.

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RERA won’t legally uphold any commercial contract signed between the developers and the investors said by the real estate experts. The clauses which investors want to put in directly involved with monetary hazards. For instance if any fine have to be given then it will be paid from the developers’ account directly without dragging the investors. During past few years many investors in the real estate field including the PE firms were dynamically involved in design, development and marketing projects of real estate business. These investors will be now categorized as promoters and duty-bound to abide by RERA. When it comes to foreign investors such as foreign PE funds which have been currently rolling in the Indian real estate market, their diluting ventures are also being considered. Some of these investors want to close all the ongoing deals to go out of the projects to reduce the risk and their direct association. However this won’t be an instant and easy task.

Few investors are also looking to dilute the risk of attachment in the real estate SPVs (special purpose vehicles), but that may not be a release option to have a profitable exit. RERA won’t also spare those PE firms that have taken power of those projects which haven’t been completed by the developers for some reasons. This act is targeted to cut down the wrongdoings of property business. RERA is here to advance the real estate funding environment, to set a regimented approach for project completion. It will certainly bring transparency in the agreements between developers and their investors.

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