Impact of Covid 19 on Real Estate Sector

The Real Estate (Development and Regulation) Act, 2016, hereinafter referred to as "RERA" is a central legislation that aims to bring the real estate sector under its ambit thereby aligning the interests of the allottees and the promoters. RERA was enacted for providing relief to the allottees aggrieved by the actions of their builders. These reliefs include a refund of delayed possession by the builder to the allottee, disputes resolution between the parties, breaking the monopoly of the builder, changing the one-sided clauses in the agreement, etc. In the history of the Real Estate Sector, any Force majeure event impacts the Real Estate market heavily. Currently, the whole world is going through a situation in which it is very risky to step out of the place of shelter and live a normal life, as this is the new normal which needs to be adopted by us as a society.

As per the recent trends and developments post-enactment of Real Estate (Development and Regulation) Act, 2016:

● Around 48,000 cases filed with the RERA Tribunal have been resolved since inception with Uttar Pradesh Real Estate Regulatory Authority as the leading tribunal.

● Many judgments from the Judicial authorities have rectified the one-sided terms of the builder buyer agreement which earlier builders used to harm allottees.

● Allottees have gained confidence in the judiciary due to the quick disposal of disputes between the allottee and builder.

● The alternate dispute resolution mechanism available to the Allottees due to the enactment of the Real Estate Authority Act, 2016 is easier as compared to the former court proceedings and in the post-pandemic scenario, Virtual Hearings have further helped in providing relief to the allottees, at the pleasure of staying at home.

The Government after considering the unmeasurable impacts of the Novel Coronavirus, the definition of Epidemic disease through Epidemic Diseases Amendment Ordinance 2020, changing the 123-year-old act. Further, the COVID-19 is also considered now as the “Force Majeure” event which also impacted all the agreements executed and to be executed post-COVID-19 situation.

Impact:

1) The date of possession falling between the lockdown period (w.e.f. 22/03/2020) got shifted due to non-finishing of the flats ready to take over possession without any compensation of the extended period to the allottees.

2) The flats which were under-construction got delayed due to non availability of construction materials, labour, transportation, etc. restrictions have disrupted the supply chains, creating a scarcity of raw materials.

3) The migratory labour which accepted earlier every severe working conditions at the site of the Builder, will now not be available for a quick kick-start post unlock, as the various Government schemes like MNREGA and PM Gareeb Kalyan Anna Yojana which provides minimum assured wages and free Essential items at the doorstep respectively, will not let them move out to earn a livelihood.

4) The already financially stressed Real estate sector will further face the financial crunch due to less availability of Liquid funds available with the demonetization stressed Real estate investors.

5) The prices of the stocks already available with the Builder will have to be slashed to fetch out funding for the prospective projects in the plan.

6) In the pre-pandemic situation, there was a balance between allottees who opted for a full refund along with interest and who opted for delayed possession along with compensation. Now in the present scenario, due to tight availability of liquid funds with the allottee, the allottee will go for a full refund, further impacting the liquidity of the Builder.

7) Currently, homebuyers are reluctant to book in under-developed projects, preferring ready to move in flats since it greatly minimises risk.

8) After the situation normalises still there is more scope for the inordinate delays and scarcity of resources as the economy and its resources will take time to come to normalcy, and due to this, the builders will be penalised and even put behind bars for inordinate delays.

9) Now the stage has arrived when the monsoon is approaching the country, eventually in this time period construction activities would not be possible for a kick start due to challenging situations in this season.

All things considered,

❖ The only way builders and contractors could recruit workers is by offering extra wages or incentives, including safe working conditions.

❖ To compensate these types of situations RERA does provide to promoters a one-year extension in completing the projects if the delay is beyond their control, so this can help them to gain their client's trust again.

❖ RBI needs to lower the repo rate further and mandate banks to pass on these benefits to consumers, which will eventually prove a robust mechanism for the real estate sector.

❖ Relaxation in RERA compliance norms for residential projects and waiving of repayments (including interest component) for developers upto three months and thereafter, as per ground realities.

❖ The lower lending rate should be offered for real estate development and the NPA (Non-Performing Asset) classification for stressed projects extended beyond the current 90 days.