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Atma-Nirbhar Bharat Movement: Impact On The Real Estate Sector

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Atma-Nirbhar Bharat Movement: Impact On The Real Estate Sector
Farshid A Cooper - 02 June 2020

It is well-documented that the spread of the novel Coronavirus and the resultant lockdown has led to an economic slowdown, the kind of which our generation has never witnessed before. It has affected a cross section of industries, geographies and livelihoods. Every extension of the national and state lockdown has led to increasing amounts of pain for organizations that are fighting for survival. Much like others, the realty sector has also faced tremendous hurdles as construction projects get delayed, new sales slip and expenses continue to rise.

As the economy grapples with the effects of the COVID-19 pandemic, developers looked to the state and central government for financial assistance and support. Over the course of this lockdown, multiple relief measures have been announced. For instance - the government announced a special liquidity scheme worth INR 30,000 crore for Non-Banking Finance Companies (NBFC’s), Housing Finance Corporations (HFC’s) and Micro Finance Institutions (MFI’s), which carry a guarantee by the Government of India. Further, an amendment was made under the Real Estate (Regulation and Development) Act, wherein COVID-19 disruption will be treated as force majeure and an extension of 6 months/9 months (depending on which part of the country the project is being constructed) will be provided for varied to completion timelines.

Here are the following benefits that have been reaped from the policies introduced by the government:

  • The realty industry is the second largest employer in the nation as it offers over 2.5 crore jobs. An infusion of liquidity was essential to set the wheels of survival in motion.
  • The RBI has empowered NBFCs, in respect of loans, to allow extension in the Date of Commencement for Commercial Operations (DCCO) by one year if the projects are delayed for reasons beyond the control of promoters.
  • Loans offered by NBFCs to real estate companies are set to enjoy similar benefits as those given by scheduled commercial banks, subsequently reducing the financial burden of the developers. The measures that have been announced with an aim to maintain adequate liquidity in the system to promote the credit flow through banks as well as ease financial stress.
  • Finally, additional offerings such as collateral and guarantee free loans, equity funding options, better access to government procurement, e-market linkage and higher thresholds have worked well towards improving the condition of the industry.

However, this is not nearly enough. A lot more could and should have been done to alleviate some of the more astute pain points faced by the industry. Below are some of the facets that the government should consider for any future amendments to the Atma-Nirbhar Bharat Movement:

  • Numerous experts expressed that the central government should have reduced home loans by two to three per cent, this endeavour would have been a lucrative offer for those who are willing to invest in property during the era of COVID-19, consequently boosting the sales. Further, even the government would have benefitted in terms of revenue income, as taxes account for 40 per cent of a realty unit’s cost.
  • The benefits that were offered to the Medium, Small and Micro Enterprises (MSME) should have been provided to the realty sector as well. These measures would have acted has a great support system, especially during the prevalent gruesome hours, enabling companies to successfully pay salaries and manage other expenses.
  • Liquidity is the need of the hour and while the government has authorized Rs. 30,000 Crore towards re-capitalizing NBFC’s, HFC’s and MFI’s, the same is not nearly enough considering the daunting task of having to make up for lost time and not particulaly being able to depend on future/existing sales and a reliable source of cash flow.
  • The migrant labour crisis has not been addressed at all. The same could prove to be the the longest lasting and most painful of all the effects of this pandemic. Today most constructions sites in Maharashtra are operating at 15-20% of their optimum labour force and this is not something that can be sustained indefinitely. Delays due to slower construction will lead to higher than expected interest costs as well as unhappy and letigioius customers. This could lead to disaster in the long term for the industry and therefore needs to be addresssed immediately with cohesion from state and central governments.

The author is the MD at Spenta Corporation

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