Offering some relief to real estate developers, Union finance minister Nirmala Sitharaman on Wednesday asked states and union territories to extend the registration and completion date by six months of all projects registered under the Real Estate Regulatory Authority (RERA). This would apply to all real estate project registrations expiring on or after 25 March and individual applications are not needed.
Sitharaman said the Covid-19 pandemic should be considered an event of ‘force majeure’ or an ‘act of God’ under RERA. Consequently, the urban development ministry will issue an advisory to all states and UTs so the respective regulatory authorities can invoke the ‘force majeure’ clause.
“The decision to treat Covid-19 as an event of ‘force majeure’ under Section 6 of the RERA and extension of registration and completion date are proactive steps from the central government,” Abhilash Pillai, partner, Cyril Amarchand Mangaldas, said. “This will certainly help developers, especially in a situation when they are facing supply-chain disruption and shortage of labour. The developers will also be able to pass on the benefit to the home buyers, by extending the payment schedule, who are facing pay cut/ job less threats on account of Covid-19.”
The finance minister said that fresh project registration certificates should be issued automatically with revised timelines. Timelines will be extended for various statutory compliances under the RERA concurrently.
The Covid-19 has stalled the construction of thousands of real estate projects, putting a stop on home sales and creating cash flow problems for developers.
The residential sector was already reeling from a prolonged slowdown and the lockdown has only deepened the crisis.
“…This is a big move that will de-stress developers significantly, since construction activity had been halted all across the country. Home buyers’ wait for their homes will get extended by this move, but this was in any case inevitable,” said Anuj Puri, chairman, Anarock Property Consultants.
However, developers and investors said that liquidity infusion is needed to turn around the sector, which has been witnessing a slew of challenges.
Sharad Mittal, chief executive of Motilal Oswal Real Estate Fund, said with most projects likely to be delayed by at least 4 to 6 months, this is a welcome move, but it doesn’t address the larger liquidity and cash flow related challenges faced by developers.
The extension of deadline may also mean extra interest burden for home buyers as they will have to continue servicing their home loans for this extended period.
“The government has basically legitimised the delay even if the delay may not have been necessary on the account of Covid-19. There is no clarity whether homebuyers will be able to correspondingly delay their payments to developers. The home buyers will have to continue paying EMIs and rent during this period,” said Gaurav Gupta, CEO, MyLoanCare.in.
“Force majeure was not required. The extension of deadlines should have been limited to the lockdown period,” said Abhay Upadhyay, president, homebuyers body Forum for Peoples’ Collective.
