Amid a disturbing scenario of COVID-19 infection and resultant recessionary symptoms such as crashing stock market and subdued economic activities, the second round of economic package announcement by the Finance Minister has come as a breather for India Inc. 99acres.com tries to analyse the measures and their effects.
When the morale of the nation is dwindling with an uncertain enemy at the gates, the reform measures announced by the Finance Minister have come as a relief. Be it the extension of Income Tax Return Filing date to November 2020, liquidity support to the NBFCs or the invocation of ‘Force Majeure’ clause for stuck real estate projects; the handholding is of grave importance in these testing times. The real estate sector is also encouraged by the suspension of Section 7, 9, and 10 of the Insolvency and Bankruptcy Code (IBC). The increase in default threshold limit for insolvency proceedings will also help the companies in avoiding unwarranted insolvency cases.
In an exclusive interaction with 99acres.com, Amit Goenka, MD and CEO, Nisus Finance talks on the impact of COVID-19 on Indian real estate.
Let us analyse the announcement and their potential effects in greater detail.
Among the slew of measures announced by the Finance Minister, the following affect the real estate sector directly-
- In a bid to prevent ‘at the drop of a hat’ insolvency proceedings against medium and small enterprises, the Finance Minister has announced that the default threshold limit will be increased from Rs 1 lakh earlier to Rs 1 crore. The limit has been increased 100 times. This increase in the threshold will prevent the insolvency proceedings of companies for petty matters or insignificant defaults such as minor paperwork or non-compliance.
- The Government had made an announcement that if the current situation of lockdown and economic inactivity continues for more than six months, it may consider suspending Section 7, Section 9 and Section 10 of the Insolvency and Bankruptcy Code (IBC), 2016. The said clauses have thus been suspended for one year.
Section 7, 9 and 10 of the IBC are related with the initiation of corporate insolvency proceedings against the corporate debtor (generally real estate developers).
In the recently passed amendment in the Rajya Sabha, the Central Government had set a minimum threshold of 100 homebuyers to initiate a Corporate Insolvency Resolution Process (CIRP) against a developer. This was done to check frequent and unwarranted proceedings against developers which were delaying the delivery of housing projects.
“In the light of economic slowdown due to Covid -19 pandemic, the government is moving positively to support India Inc. Today’s announcement by honourable Finance Minister on relaxations of rules for TDS, GST and corporate compliances were a much-needed respite. The industry is now eagerly awaiting the proposed economic package, which we believe would be sufficient and consequential to mitigate the anticipated spiral blow on the economic activity.”
Kamal Khetan, Chairman and Managing Director, Sunteck Realty Ltd
Second round of economic measures (Announced on May 14, 2020)
Amid the fourth phase of nationwide lockdown, the Central Government has rolled out a slew of measures to handhold the economy, badly bruised by the Coronavirus-induced slowdown. With a total layout of over Rs 6 lakh crore, the Finance Minister sought to strengthen credit disbursing agencies such as NBFC and HFCs.
- As Non-Banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) are finding it difficult to raise money from the market, the Central Government has announced a special liquidity facility of Rs 30,000 crore for this section. Under this, the Government will make an investment in both primary and secondary markets, into the investment-grade debt papers/securities of NBFCs and HFCs.
- The securities will be fully guaranteed and backed by the Central Government. This supportive measure will provide the much-needed liquidity support to NBFCs/HFCs and Micro Finance Institutions (MFIs). The real estate sector directly stands benefitted by the move as the sector is one of the foremost business domains to avail the credit facility from these institutions.
- The Centre is strongly urging the State governments to invoke the ‘Force Majeure’ clause under RERA for the stalled real estate projects. Under the said clause, the registration and completion date for all the registered projects will be extended by up to six months. It will be a huge relief for the real estate sector as the project delivery deadlines will definitely be pushed further, owing to an altogether ban on construction activities.
- Giving relief to the construction contractors engaged with the National Highways Authority of India and other such agencies, an extension of up to six months will be granted to complete the construction obligations.
- In a major relief to the affordable housing sector, the Central Government has extended the Credit Linked Subsidy Scheme (CLSS) up to March 2021. It will lead to an investment of Rs 70,000 crore and will help the housing sector immensely.
- The minimum wages of all the labourers have been increased from Rs 182 to Rs 202 per day. In addition to this, the migrant workers stranded in various parts of the country will be provided with food for the coming two months.
- The Government also announced the formation of rental housing complexes via public-private partnership for migrant workers and urban poor.
Apart from the measures mentioned above, the Finance Minister has rolled out a series of reliefs for the industrial sector, viz
- The last date for filing of Income Tax Returns, Aadhar-PAN linkage, amnesty scheme for tax disputes and composition scheme has been extended until June 30, 2020.
- The penalty on delayed deposit of TDS has been halved from 18 percent to nine percent.
- The Government also announced that no extra fees would be levied for late filing of any document required under MCA-21 category between the moratorium period from 1 April to 30 September. It will reduce the compliance burden on companies amid negative sentiment due to the coronavirus spread.
- Newly incorporated companies have been given an additional six months to file commencement of business declaration (earlier six months).
- The requirement of having one of the directors of a company in India for the last 182 days has been relaxed, and violations will be condoned in the wake of COVID-19 crisis.
- Bank charges for trade and finance consumers will be reduced for digital transactions.
- Thrice-a-day monitoring of the stock market by the Securities and Exchange Board of India (SEBI) and the Government will have a pacifying effect on the crashing market.
- Extending support to the banking institutions, the Government has expanded the purview of partial credit guarantee scheme. The Government will provide a 20 percent first-loss credit guarantee to public sector banks. It is a much needed moral and functional support to an industry demotivated by the dismal business scenario across the country. (Announced on May 14, 2020)
Change in the definition of Micro, Small and Medium Enterprises (MSMEs) is a morale booster for the sector. Now, the manufacturing units with an investment of up to Rs 1 crore will be considered as micro industries. MSMEs have been supported with a special ‘Fund of Funds’ to the tune of Rs 50,000 crore. (Announced on May 14, 2020)
Expressing elation over the announcements, Niranjan Hiranandani, President, NAREDCO, says, “The first set of announcements made by Finance Minister Nirmala Sitharaman adds up to almost Rs 6 lakh crore. The announcement related to the regulatory aspect such as the extension of dates under RERA by allowing ‘Force Majeure’ with the Urban Development Ministry issuing advisories to treat the COVID-19 period as an 'Act of God'. Relaxation in project timelines under RERA Act will bring in a sigh of relief to the developers and safeguard the interest of homebuyers. The second tranche of India’s economic stimulus was measures and relief announced for migrant workers, street vendors, and small farmers. Extension of the Credit-Linked Subsidy Scheme (CLSS) till March 2021 as also a rental housing scheme for urban poor and migrant labour in cities under PMAY were the takeaways for real estate. The Finance Minister mentioned a scheme that seeks to provide affordable rental housing for urban poor and migrant labourer in urban areas.”
Conclusively, the COVID-19 has triggered an economic emergency. In these extraordinary times, the Central Government is doing well to handhold the industrial sector through policy measures. Continuous efforts to check the COVID-19 spread and announcement of further policy measures for the smooth functioning of the economy are the need of the hour.
Let us have a look at the reactions of the real estate industry stalwarts on the recent move.
Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani
The bold economic measures announced today display the Government's strong commitment to tackle the unprecedented challenges and restore confidence and faith in the economy. Providing an extension for completion of projects and treating the coronavirus outbreak as an event of 'force majeure' under RERA, brings a major relief for the sector that has been the backbone of the economy. During the lockdown, the construction industry has nearly come to a standstill thus negating the green shoots that had just begun appearing prior the pandemic came to the fore. In order to tackle the subdued demand from home buyers during and post COVID-19, reduction in interest rates on home loans will encourage fence-sitters to act quickly to invest in a property.
Government measures towards improving liquidity and providing a boost to the MSME sector is also commendable. The Special Liquidity Scheme of Rs 30000 crore for non-banking financial companies, microfinance companies, and housing finance companies will bring in liquidity in the market. The various economic measures announced by the Government during COVID have given a powerful booster dose to revive the Indian economy. The resolution to remain self-reliant coupled with revolutionary reforms will surely lead the country on a high growth trajectory.
Avneesh Sood, Director Eros Group
We welcome the decision of the Finance Minister to declare Covid-19 as Force Majure. We are hopeful that the extension of timelines of 6 months for the RERA completion timelines for all projects is definitely an important announcement for the developer’s fraternity in coping up with backlogged work due to natural disaster delays. Also, the announcement of Rs 30,000 crore special liquidity scheme for Non-Banking Finance Companies (NBFCs) and Home Finance Companies (HFCs) and Micro Finance Institutions (MFIs), is a positive move for real estate industry.
Anshuman Magazine, Chairman and CEO, CBRE India, South East Asia, Middle East & Africa
Following the announcement made by Hon’ble Finance Minister Nirmala Sitharaman yesterday, the industry welcomes the measures announced today by the Government. The announcement on rural infrastructure and affordable rental accommodations for urban and migrant workers under PPP partnership will open newer avenues for the construction industry. For the middle-income group, the extension of Credit Linked Subsidy Scheme (CLSS) up to March 2021, is a positive step and will further strengthen demand in the affordable housing segment.
Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory
The Government has intended to resurrect the economy by reviving sentiment. The Rs.30,000 crores infusion in NBFC's, HFC's and micro-finance companies with the help of debt papers and additional 20 percent emergency credit line to businesses will directly impact the Real Estate sector and bring much-required liquidity for construction and project completion. Additionally, the invoking of force majeure clause for registered real estate projects will protect the interest of developers, by extending the completion timeline by a duration of 6 months under RERA automatically.
The same was much required, as a lot many developers could face challenges of aligning construction workers and labourers for the next few months as a result of their migration. The 25 percent TDS reduction will benefit existing homebuyers as it will leave additional money in their hands. Additionally, the 3 lakh crore collateral-free loans for small business and Rs.20,000 crore fund for stressed MSME's will offer respite in these testing times to major employment-generating business category.
Arya Sumant, Managing Director, Eden Realty Group
When the lockdown was announced, it was a very big step taken by the Central Government and state governments. It was understood that it would cause immense hardship to all Indian citizens, but the majority of Indian citizens supported the government decision and did what was asked from them. Now the time had come for the Government to reciprocate and appreciate the efforts taken by the Indian citizens which they have done by giving the largest ever package Indian economy has ever seen. What has been more important is the message communicated by the honourable Prime Minister that we have to make India great again. Together we will overcome this COVID pandemic and come out as a stronger, safer and healthier nation.
Manas Mehrotra, Chairman, 315Work Avenue
The announcement of the Rs 20 lakh crore economic package with an overall aim of a self-reliant India is indeed very welcome and is the need of the hour. It will provide the right boost to demand and growth of our economy once again and will bring much-needed relief to several stressed sectors and industries. The focus on localisation, global competitiveness, vibrant local manufacturing etc. will be critical to make India a driver of the global economy. What we now need to do is to look at the ease of doing business from a setup and compliance perspective to make India more productive.
Abhishek Bhardwaj, Chief Marketing Officer, Shristi Infrastructure Development Corporation Ltd
The special package announced by PM Modi to revive the Indian economy post the COVID crisis is laudable. The focus of the package is on ease of doing business, ease of compliance, and regulation, which is indeed the need of the hour. The proposal for the extension for real estate projects under RERA is the welcome step. The treatment of Coronavirus as an event of 'force majeure' under RERA, issuance of fresh project registration certificates automatically with revised timelines and extension of the registration and completion date Suo-moto by six months for all registered projects expiring on or after 25th March 2020 without individual applications are welcome initiatives by the Government for giving the real estate industry the required boost it requires.
Harish Kumar, Executive Director, REPL
The first tranche came as breather amid corona crisis as the MSME sector received a big push. The announcements are aimed to infuse liquidity and ease the functioning of the MSME. By tweaking the definition of MSMEs the benefits will extend to a lot of units. Along with this, the collateral-free automatic loan for MSMEs worth Rs 3 lakh crore for four years, coupled with a no repayment of the principal amount for the first 12 months will give a big relief to almost 45 lakh units. The Rs 50,000 crore equity infusion through 'Fund of Funds' will help the MSME units in leveraging expanding their size. By disallowing global tenders from the project worth Rs 200 crore, the government has eased out the competition for the MSMEs. This will give more opportunities to them and therefore, enormous growth can be expected in time to come.
By increasing the liquidity flow in the MSME sector, the government also addressed the job losses caused due to corona scare. This directly would help in improving the market sentiment as the demand will not go for a toss. The real estate also got a lifeline as the government announced a suo moto relief of six months for RERA completion timelines along with an additional three months window which can be granted by the state authorities. However, the real estate sector was also expecting a bigger chunk as the government failed to address the larger liquidity and cashflow challenges.
Rishi Jain, Managing Director, Jain Group
The Government has taken cognisance of the economic impact of the COVID Virus and started its economic stimulus measures but more needs to be done before any major impact is seen. Government measures towards MSME are commendable; it shows the sensitivity and feedback taking approach and must be congratulated. It is disappointing to see no relief for the hospitality sector, the hardest-hit industry. The relief proposed for real estate also lacks anything substantial. Hopefully, this is the first of other more substantial measures.
Rattan Hawelia, Founder & Chairman, Hawelia Group
The treatment of Covid-19 as a force Majeure event is an appreciable measure for the real estate sector. This shall surely help the developers to remobilise and reorganise the halted projects due to the pandemic with a hope that supply chain disruption and shortage of workers are timely resolved, and the necessary support to the projects due to these two vital hindrances is sorted. We are seeking that Hon’ble Finance Minister shall incorporate this force majeure event definition to the working of other local authorities as well and should declare it as Zero Period for required relief to the real estate industry.
If the supply chain, availability of workers, de-cartelisation of raw material prices, etc. is not controlled by the Government, then there could be an even deeper adverse impact on the sector and further reasonable extension of the current declared period would be required. The sector is expecting the liquidity problem to be addressed by the Government in further clarification of the relief package. The infusion of liquidity shall boost the sector at large, and the majority of the halted projects shall be on track within a reasonable time of operations.
Rohit Gera, MD, Gera Developments
The holistic announcement by the PM for a self-reliant India is extremely exciting. To convert adversity to an opportunity is a game-changer. The approach being all-encompassing indicates this has been completely thought through. The PM has raised expectations of 130 crore people. We look forward to the details supporting this vision.
B.L. Mittal, Founder and Executive Chairman, Sastasundar.com
The packages announced by the Honourable Finance Minister are in line with PM Modi's vision of 'Being Local'. The needed financial support to MSMEs is the most welcome feature. More than the financial stimulation meaning full reforms in land, labour and laws, this will have far-reaching positive impacts as it will open up the energy of India's young population.
Arjunpreet Singh Sahni, Executive Director, Solitaire Group
Following the announcement of Rs 20 lakh crore fiscal stimulus economic package made by the prime minister, the finance minister Nirmala Sitharaman has today provided the much-needed relief to the real estate sector by announcing force majeure under RERA and relaxed timelines for registration and completion of projects for another six months. These steps are highly welcome in view of the current crisis situation faced by the industry due to the COVID-19 impact owing to which the real estate sector is facing supply chain disruptions and struggling with a shortage of labour at sites. In such a scenario, these announcements will certainly help the industry tide over the current turbulence phase. Further, the provision of Rs 30,000 crore special liquidity scheme to NBFCs will also help revive the demand and improve the overall market sentiments.
Pradeep Aggarwal, Founder and Chairman, Signature Global Group and Chairman, ASSOCHAM National Council on Real Estate, Housing and Urban Development
The relief provided to the common man under EPF will help the affordable segment a great deal. The buyers of affordable housing fall in this category, and they will be delighted to have extra funds at their disposal. The COVID-19 situation has made everybody realise the importance of making secure long-term investments and having a roof over one's head.
The announcements regarding the extension of project timelines under concerned Real Estate Regulatory Authorities shall help a great deal in providing relief as developers will have more time to conclude their projects and buyers will also understand the reason behind the extension of the same.
Ankit Kansal, Founder and Managing Director, 360 realtors
The Finance Minister has taken some commendable steps, thus giving relief to the Indian real estate sector. As the stipulated timelines for project completion have been extended, it will provide great relief to the developers.
Also, the Central Government has announced its decision to re-finance Non-Banking Finance Companies (NBFC), which will result in capital injection and increased circulation of credit in the market. We believe that with the increased coordination between the government, lending institutions, and real estate players, the rate of recovery in Indian Real Estate will get expedited.
Rajat Goel, JMD, MRG World
The recent announcements made by the Finance Minister Nirmala Sitharaman under the self-reliant India movement will ease the recovery process for the real estate sector in the coming months. It has treated COVID-19 as a 'Force Majeure' event under Real Estate (Regulation and Development) 2016, along with the extension of project registration and completion date suo-moto for all registered projects expiring on or after 25th March 2020.
We welcome the government's measure for understanding our position in these challenging times and helping us maintain positive relations with our customers. We would be looking forward to completing our projects under this new timeline, with due support from the relevant Real Estate Regulatory Authorities.
Ambika Saxena, Co-founder, FindMyCoWork
The reliefs announced will surely go a long way in boosting the real estate sector and the Micro, Small and Medium Enterprises. The collateral-free loans and the 25 percent reduction in Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) will marginally increase the cash flow in the market.
Nakul Himatsingka, Managing Director, Ideal Group
The extension of the CLSS scheme is a welcome announcement. The scheme has helped boost demand for affordable housing and shall help maintain the same going forward. The affordable rental scheme looks promising, and we shall eagerly await to read the details for the same and see if there is a business model in it for builders.