India, an ever-blooming and growing nation, was one of the fastest-growing economies of the world (According to the International Monetary Fund). However, Covid-19 has not just created turbulence in the India economy, but globally.
Several industries have been disrupted, service industries particularly taking a big hit and several migrant workers getting stranded and being out of jobs when the lockdown was announced on the 25th of March.
With a population of 1.3 billion people of which 65% of the people of India live in rural areas and 35% live in urban areas, the entire population came to a standstill.
As restrictions relaxed over the course of time, and many sectors such as the IT sector have opted to keep their employees working from home till June 2021 – the real estate sector took a fair hit with landlords losing several tenants and many withdrawing near future plans on real estate investments due to the uncertainty and low cash flow.
In an attempt to succour the real estate sector, the government took some of the following measures:
- Announced relief measures for aggrieved real estate developers: the Central Government increased the threshold for initiating default proceedings under the Insolvency and Bankruptcy Code (IBC) 2016, from Rs 1 lakh to Rs 1 crore.
- Funds for the welfare of construction workers: The Government has urged the State governments to utilise the Rs 31,000 crore fund for the welfare of construction workers, so as to minimise the adverse impact of the nation-wide lockdown on the same.
- Release of a relief package: Rs 1.71 lakh crore will benefit migrant construction labourers.
- Reduction in the Repo rate: Reverse Repo rate and CRR by the Reserve Bank of India (RBI) will lower the cost of borrowing for the real estate sector and will help projects which were delayed due to funding crunch.
- Deferment of home loan Equated Monthly Installments (EMIs): This will help borrowers and the business community utilise funds for priority activities.
- Deferment of dates for key filings such as ITR: Composition scheme and Aadhar-Pan linkage will ease the compliance burden. Various State governments (Delhi, Maharashtra, Gujarat, and Uttar Pradesh etc.) are offering compensation to migrant workers for loss of employment and are arranging for food and temporary shelters for the same. The Delhi government has also offered to pay rent on behalf of migrant citizens so that they stay put at their place of residence.
- Government pay cuts: The Government of India has rolled out an ordinance to reduce the salaries of President, Vice-President and Governors. The Cabinet has decided that all Members of Parliament (MPs), including the Prime Minister and Cabinet ministers, will also take a pay cut of 30% for a year.
- Decreased the Reverse Repo rate: To ease the potential cash crunch situation in the economy, RBI has announced a slew of measures. It has decreased the Reverse Repo rate by 25 basis points from 4% to 3.75%. This step will aid banks in terms of liquidity, which could then be disbursed as credit.
- RBI’s direct funding facility: A direct funding facility to the tune of Rs 1 lakh crore. Out of this, Rs 50,000 crore will be earmarked for the National Housing Bank (NHB), Small Industries Development Bank (SIDBI) and National Bank for Rural and Agricultural Development (NABARD). The second tranche of Rs 50,000 crore will be provided through the Long Term Repo Operation (LTRO). This is one of the largest direct liquidity infusions by the Central Bank in recent times.
- Deferment of Date of Commencement of Commercial Operations (DCCO) to the Non-banking Financial Companies: RBI has allowed the facility of deferment of Date of Commencement of Commercial Operations (DCCO) to the Non-banking Financial Companies (NBFCs). This facility was hitherto available only to banking institutions. The move is expected to help real estate developers who have taken credit from NBFCs.
- Three-month moratorium period: RBI has provided that the three-month moratorium period provided on all kinds of loans, will not be counted for the purpose of calculating Non-Performing Assets (NPAs).
- Suspension of Section 7, 9 and 10 of the Insolvency and Bankruptcy Code (IBC): In a major relief to corporate real estate borrowers, the Central Government has decided to suspend Section 7, 9 and 10 of the Insolvency and Bankruptcy Code (IBC).
- ‘Force Majeure’: The Central Government has urged State governments to invoke the ‘Force Majeure’ clause of RERA so that the registration and completion schedule of the real estate projects can be extended by at least six months.
- Special liquidity facility to the tune of Rs 30,000 crore: Providing incentives to cash-starved Non-Banking Financial Companies (NBFC) and Housing Finance Companies (HFC), the Indian Government has provided a special liquidity facility to the tune of Rs 30,000 crore. This will pump up the much-needed cash flow in the real estate market, which is one of the foremost borrowers for NBFCs. The refinancing window for HFCs will work to rekindle the interest of homebuyers in the housing segment.
- Extension of construction contractors: Those engaged with government infrastructure companies have been given an extension of up to six months to complete ongoing projects.
- Refined MSME: Change in the definition of Micro, Small and Medium Enterprises (MSME) will help in reviving tanked business sentiment. This will help in demand creation and shall have a positive domino effect on the residential segment.
- Extended the (Credit Linked Subsidy Scheme) CLSS: The Government has extended the CLSS component of the Pradhan Mantri Awas Yojana (PMAY) till March 2021. This shall benefit both homebuyers in the middle-income segment and real estate developers.
- Loan restructuring for the stressed sectors: After providing a three-month loan moratorium to the borrowers, the Reserve Bank of India appointed a committee for considering the loan restructuring for the stressed sectors of the economy. The K V Kamath-led committee has suggested a graded approach towards loan restructuring. Laying specific banking parameters for both residential and commercial real estate sectors, the committee has categorically stated that instead of taking the entire company into consideration, the restructuring process must be done on a project by project basis.
The loan restructuring framework will infuse the much-needed liquidity into the system and revive the stalled projects across the nation. The move will also save numerous developers bearing the brunt of unforeseen challenges due to COVID-19, from stern insolvency and bankruptcy proceedings.
With turbulent times and new unprecedented circumstances that come about and challenge several counties policies and what would have been thought to be a steady future plan for economic growth present global scholars and leaders to start thinking more critically and anticipating unplanned changes for their nation.
Although economies have taken the backseat and the future looks grim, situations such as Covid-19 present a challenge and opportunity to identify loopholes and come up with more innovative robust economical plans that take into consideration the impact of every sector and stakeholder in a country.