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Atmanirbhar Bharat: Is this the end of fund crunch for real estate?

Nirmala Sitharaman Economic Package RealtyMyths

by Santosh Sinha

In continuation of the Rs 20 Lakh Crores relief measures announced by PM Narendra Modi, FM Nirmala Sitharaman on Wednesday (May 13) laid down the first set of details. Along with other major announcements, she also announced relief to real estate developers by extending the deadline for completion of projects by up to six months in the wake of the COVID-19 outbreak. She asked the regulators to consider the period as Force Majeure.

She explained that the relief will be extended on a Suo-moto basis to all the registered projects under the Real Estate (Regulation and Development) Act, RERA, and were expiring on or after March 25, 2020. The government had announced the first phase of lockdown to control coronavirus from March 25, 2020.

Notably, the real estate developers were also demanding that the deadline for completion of projects should be extended by at least six months as construction work came to a halt due to the lockdown.

The developers were also showing concerns about the unavailability of funds and the slowing demand in the market. Ms. Sitharaman, while explaining the fine prints of the economic package, addressed developers’ these concerns as well. She announced a provision of Rs 30,000 Crore of Special Liquidity Scheme to be invested in both primary and secondary market transactions in investment-grade debt papers of Non-Banking Financial Companies (NBFC), Housing Finance Companies (HFC) and Micro Finance Institutions (MFI). It is assumed that these funds will help these institutions lend to sectors like real estate.

The real estate developers’ community welcomed these announcements. Anuj Puri, Chairman, ANAROCK Property Consultants found these announcements much in line with the government’s aim to spur economic growth and build a ‘self-reliant’ India. He explains, “the announcement of INR 30,000 crore special liquidity scheme for NBFCs/HFCs and MFIs will ease liquidity woes of stressed players. This will benefit the real estate sector significantly, given that NBFCs and HFCs are major lenders to it. As per ANAROCK research, NBFCs and HFCs together contribute almost 56% of total lending to real estate in India currently”. Himanshu Chaturvedi, Chief Strategy Officer, Tata Projects Ltd., said, “The Government’s Atmanirbhar Bharat initiative has recognized “Infrastructure” as one of the five pillars. This is an acknowledgment of the sector’s key role in India’s development and large scale employment generation.”

Ravindra Sudhakar, CEO, Reliance Home Finance also termed the announcement as pathbreaking as he explained, “The move to extend the registration and completion date by 6 months for all registered projects will provide more time to such developers to raise fresh financing or debt to complete their pending projects. The ease of compliance norms under RERA and other laws in a timely and well thought out decision to ease the stress of small developers, especially those into affordable housing”. Anshuman Magazine, Chairman & CEO – India, South East Asia, Middle East & Africa, CBRE also found the announcement as the need of the hour. He said, “The announcement of liquidity measures for NBFCs and HFCs is an encouraging step and will provide much-needed relief to the sector.”

“I welcome this move by the government, of extension of the deadline for projection completion and registration as it extends a great relief to the real estate sector as a whole. in the current situations and halted construction activities, this is like a stress buster as it would relieve the developers. This move will help in the overall economy upliftment”, said Mr. Pankaj Jain, Director-KW Group.

However, some of the industry experts termed it as the first set of announcements and expect the Finance Minister to announce more sops for the sector. Bhairav Dalal, Partner, and Leader Real Estate Tax, PwC India, said, “The industry is clearly looking for much more, especially on the fiscal side.  The current biggest challenge for the industry is liquidity and some clear measures are needed to address the same” Dr. Niranjan Hiranandani, National President, NAREDCO, while welcoming also asked for more fiscal stimulus. He said, “Industry is pegging a big hope on much-awaited fiscal relief to be granted to the second-largest employment generating sector. Liquidity infusion will be imperative to turn around the depressing scenario of the sector.” CREDAI, the real estate industry body, also appealed to the government to announce direct measures to infuse liquidity into the sector. CREDAI’s National Spokesperson said, “We are hopeful that the Finance Minister  will soon announce other necessary measures by infusion of liquidity, de – cartelization of cement prices,  restoration of the supply chain to ease  construction on the project sites  and help uplift the demand by   giving more sops to homebuyers by increasing the tax deduction  limits for interest on home loans, thus help the sector regain momentum which remains the second largest employer.”

Indian Electrical and Electronics Manufacturers Association (IEEMA), one of the allied industries of the real estate sector, also applauded the Finance Minister for coming out with such details. “IEEMA welcomes the economic stimulus announced by The Hon’ble Finance Minister aimed at combating the economic disruption due to the lockdown”, said R K Chugh President, IEEMA. While ReNew Power, one of the leading the renewable energy producers in India, welcomed the benefits given to the Discom sector. Sumant Sinha, CMD, ReNew Power, said, “The 90,000 cr liquidity infusion into discoms will breathe fresh life into the power sector and protect distribution companies from going bankrupt. This money will help the discoms to repay most of the Rs 92,000 crore outstanding payments that they owe to power generators, restarting the virtuous cycle of liquidity, higher investments, and rapid growth for the power sector. This may also be an opportune time for the government to convince states to expedite distribution sector reforms so that distribution companies don’t need a bailout next time and are able to become financially viable entities.”

As the experts suggest that this is the first set of announcements and the government will come up with more benefits in the near future. What it seems, prima facie, that the funding problems that the developers used to face to fund their projects, is going to rest now. Sources say that the government might also announce direct benefits to the homebuyers in the forms of a significant cut in the interest rates and giving away the stamp duty on registration of properties for some period.

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1 Comment

  1. “giving more sops to homebuyers by increasing the tax deduction limits for interest on home loans, thus help the sector regain momentum which remains the second largest employer”.
    This is fine for working people who are paying taxes. But, in cases where there are no earnings and buyer is paying EMI from their savings. At the same time Builder has not given possession from last 2-3years and Buyer has approached RERA for Delay compensation ? . Builders are not doing justice to their own Agreements and we have to file case with RERA for Justice. This is very unfair as we are getting crushed between Builder, Banks and LOCKDOWN situation. Such cases are getting postponed due to Lockdown leading to delay in getting justice and no Govt Support worth naming. Need an answer from the Govt to address buyers concerns.

    Reply

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