The Covid-19 pandemic is slated to have a ‘catastrophic effect’ on India’s troubled real estate sector, which is currently worth around $12 billion and the same is contributing about five percent of GDP and due to the outbreak of the present virus a drastic drop in sales with no clarity on revival of the business can be seen .The real estate sector, already in a slump since last year and presently experiencing almost 65% payment default from customers paying the installments linked to construction.
“Presently the government is contemplating on an ordinance to amend the IBC through an ordinance seeking to suspend the relevant provisions of IBC Sections 7, 9 and 10, to provide relief to borrowers from being dragged into insolvency proceedings.”
Presently the government is contemplating on an ordinance to amend the IBC. The ordinance will seek to suspend the relevant provisions of IBC Sections 7, 9 and 10, to provide relief to borrowers from being dragged into insolvency proceedings. The need for the Ordinance shows the current position of corporate sector and is important to avoid the unnecessary litigation between the employer, employees and various stakeholders due to the liquidity challenges raised by the lockdown. The ordinance may also affect the rights of the employees as most of the generation works in corporate sector who are not paying the salary of the employees due to the financial crunch raised by the covid -19 pandemic. It will be crucial to see if such an ordinance may infring the rights of the employees as no legal remedy may be available to them. As the ordinance is expected to remain in existence for six month, it may be, if required extended or an amendment may be made in IBC may be needed as the current situation is still evolving and uncertain leading the treatment and immideate future of section 7,9 and 10 in relative abeyance.
Due to the outbreak of covid 19 the real estate business is also expected to get much effected as the target audience typically, has limited income and unemployment fears currently loom large in the economy. This could result in deferred property purchase decisions in 2020 and ultimately derail the segment growth momentum. Job losses and salary cuts endured by Indians in 2008 could look like a “minor hiccup” as compared to what Asia’s third largest economy will have to face if expected disruptions are caused by the Covid-19 pandemic.
At present, international trade restrictions have halted the supply of essential raw materials to the real estate sector. And China, which has been the epicentre of the Covid-19 pandemic, happens to be the biggest supplier of raw materials such as steel to the Indian real estate industry.
“Industry body NAREDCO president Niranjan Hiranandani estimates that the real estate sector has piled up losses to the tune of Rs 1 lakh crore,”
Industry body NAREDCO president Niranjan Hiranandani estimates that the real estate sector has piled up losses to the tune of Rs 1 lakh crore, which continues to rise with each passing day. After the pandemic, he estimated delays in ongoing projects to range from three months to a year and half, depending upon the stage of the project and location, among other factors.
Many of the government agencies as well as experts has put forward a suggestion that the real estate sector should be supported by all state governments by way of a waiver of municipal taxes and other taxes for at least one quarter. Additionally, organisations which are not able to clear up taxes or bills should not be penalised and be given around three to six months time for repayment of the same.
The people who are involve in the real estate business can save themselves from the situation of bankruptcy by using the method Sell unsold units at ‘no-profit-no-loss’ to save interest and to boost liquidity as well as builders ay expand their businesses in small towns and villages with affordable housing projects with low prices and not only focus on big cities. The builders who are not clearing their unsold stock and rather they are waiting for prices to increase may face some difficulty .
Experts feel that since stock markets have been crashing after the announcement of coronavirus as a global pandemic, there is a case for investors to make a shift in their investment portfolio. Non-bank lenders with large exposure to construction finance and housing finance companies have written to the Reserve Bank of India (RBI) Governor, saying they will run out of cash by May-June if they don’t get the benefit of the moratorium on repayments applicable to other borrowers.
To tide over the liquidity situation, NBFCs have also sought that moratorium be extended to all term loans, cash credit facilities and ECBs availed. The non-bank entities have extended moratoriums to their customers including retail and institution. A request has also been made to advise Sebi, IRDAI and PFRDA to extend the moratorium to all bond borrowings done by issuers.
Construction and housing activity have nearly stopped amid the nationwide lockdown, indicating that the major hit will come from those segments and save guards the right of the owners of the business the government has to come forward and has to take steps to safeguards the rights of both employer and employees.
