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The finance minister of India has unveiled details of the first and second tranche of the Rs 20-lakh-crore stimulus package that was announced by prime minister Narendra Modi on May 12, 2020, to deal with the aftermath of the Coronavirus pandemic in India. While several measures have been taken, to relieve the industry and the common people, relief has been announced for the real estate sector, as well.
Force majeure invoked for the real estate sector
The finance minister, on May 13, 2020, announced a suo moto extension of due dates under the RERA, by invoking ‘force majeure’. Due to the COVID-19 pandemic, a large number of developers were facing delays in project completion and were on the verge of action from the regulatory authority. The force majeure clause will allow relief to such developers, who require more time to complete their projects.
“With stakeholders being allowed to rely on the ‘force majeure’ clauses, there is much respite for developers and contractors alike. The extension of the construction period by six months, without any cost implications for all government projects and the relaxation of global tender norms for projects under Rs 200 crores, will also provide relief for the construction sector. Additionally, RERAs will be empowered to use these provisions, to ensure project completions are enforced within the extended time frame,” explains Nimish Gupta, FRICS – MD, south Asia, RICS South Asia, hoping that more measures for real estate and construction would be announced in the coming months.
Liquidity boost for NBFCs, HFCs and MFIs
The government has announced a liquidity boost of Rs 75,000 crores, to support the realty sector, so that it can overcome the COVID-19 nightmare. “In continuation of policy initiatives to infuse more liquidity in financing companies, there is a new window for borrowing up to Rs 30,000 crores by NBFCs (non-banking finance companies)/ HFCs (housing finance companies)/ MFIs (micro-finance institutions), which will be guaranteed by the government and another Rs 45,000 crores under a partial guarantee scheme, which will infuse credit to real estate sector. The government and the RBI have consistently been taking significant steps, to solve liquidity issues of financing companies and real estate,” says Piyush Gupta, managing director, capital markets (India), Colliers International.
Atmanirbhar Abhiyaan tranche 1: Demand side ignored
However, not everyone has expressed satisfaction with the announcements, so far. Most of the announcements have been for the benefit of the suppliers. Steps are required to boost the sentiments of home buyers, as well. “The announcement made by the finance minister, the first in a series, contained several measures targeted at improving liquidity and credit flow into MSMEs, NBFCs and smaller businesses. The measures are more on the supply side and there is very little on the demand side. Probably, the future announcements may contain a more balanced coverage of demand and supply-side factors. Demand-side factors generally tend to work faster, as it is oriented towards the consuming unit directly,” points out Joseph Thomas, head of research, Emkay Wealth Management.
Among the measures announced in tranche 2, the finance minister extended the deadline for the Credit-Linked Subsidy Scheme (CLSS) by one year. Commenting on this, Shishir Baijal, chairman and managing director, Knight Frank India said, “Today’s announcement has reemphasised the government’s agenda of promoting affordable housing and its ‘Housing for All’ mission. The extension of the CLSS for another year, will help demand in the affordable housing sector to inch back, as and when the economy starts to revive. This, in, turn will help the construction sector to restart operations at the earliest. However, for demand for housing to return, irrespective of the category, the economy must start growing at a stable rate and provide individuals with financial security. Thus, to assess the overall impact on the real estate sector, we have to wait for future announcements from the FM, including for infrastructure and other steps for demand augmentation.”
The announcement pertaining to force majeure, will allow developers to extend their project completion date and other milestones. This means that home buyers will get delayed possession and they will not be able to challenge it legally, as the force majeure stipulates waiver when contracts are not honoured due to acts of god or situations that are beyond anybody’s control.
Existing home buyers in under-construction units, who were waiting for the possession, may now get their homes after a delay of up to six months. Consequently, such home buyers may have to bear both, home loan EMI and rent payments, for an extended period of up to six months. This may take a toll on their finances, especially considering that there are reports of salary cuts and job losses in the country.
Some home loan borrowers are now demanding an increase in the tax benefit or waiver of the interest on home loans, to compensate for possession delays due to the triggering of the force majeure clause. The real estate sector is also hoping that additional relief measures will be announced for its stakeholders, when the next tranches of the stimulus package are announced.
Will the force majeure clause apply for all real estate projects?
The force majeure clause can be used by state RERAs, to grant a 6-month extension to project registration and completion dates, for projects registered on or after March 25, 2020.
How will the force majeure clause affect home buyers?
Home buyers may have to wait up to 6 months more to get the possession of their homes and in the meantime, they may have to continue paying the EMIs and house rent.