Government announces major relief for realty sector in Coronavirus stimulus package 2.0

[ecis2016.org] Prime minister Narendra Modi, on May 12, 2020, announced a Rs 20-lakh-crore stimulus package to support the economy in the aftermath of the Coronavirus crisis

India’s real estate sector emerged among the big beneficiaries, when finance minister Nirmala Sitharaman, on May 13, 2020, began announcing the details of the Rs 20-lakh-crore stimulus package launched by the prime minister a day earlier, to counter the adverse impact of the Novel Coronavirus on India’s economy.

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Among the several measures announced to support a faltering economy, the government plans to define the entire period during which the pandemic persists, as an ‘Act of God’ – known as ‘force majeure‘ in legal parlance – as far as builder-buyer agreements are concerned. This means that developers will not have to pay penalties for delays in project deliveries, for the period during which the construction activity has been halted, because of the pandemic. Also, real estate authorities will be directed to extend project registrations and completion dates, if these were falling after March 25, 2020.

Also see: What can buyers expect in the post-coronavirus world?

As India planned to enter into the fourth phase of the lockdown, from May 18, to stem the number of COVID-19 infections, prime minister Narendra Modi, on May 12, 2020, announced the Rs 20-lakh-crore stimulus package to support the economy.  Modi has extended the lockdown in India till May 30, albeit with some riders, as Asia’s third-largest economy attempts to mitigate the sweeping damages caused by the pandemic.

The amount is by far among the most substantial stimulus packages in the world, against the pandemic. While Japan has announced a big-bang $992-billion Coronavirus relief package, which is over 21% of its GDP, the $2-trillion stimulus package announced by the US works out to be nearly 13% of that country’s GDP. Note here that the new package announced in India, includes the earlier Rs 1.7-lakh-crore package announced in March, as well as the various measures launched by the Reserve Bank, including liquidity measures and interest rate cuts.

Key provisions in the Coronavirus stimulus package

Measures for real estate

• The Urban Development Ministry to issue an advisory to states and UTs, so that regulators can consider the COVID-19 period an ‘act of God’.
• They will be able to extend all registration and completion dates of projects, by up to 6 months.
• Using the force majeure clause suo motu, state RERAs can extend registrations and completion dates, if these were falling after March 25, 2020.

Measures for NBFCs, HFCs and MFIs

• Rs 30,000-crore special liquidity scheme announced.
• Investments will be made in both, primary and security markets.
• Government will buy investment-grade debt papers of NBFCs, fully guaranteed by the government.

Affordable housing

The Credit-Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) for the middle class (MIG segment with annual income of Rs 6 lakhs to Rs 18 lakhs), will be extended till March 31, 2021.

Rental housing for migrants

• The government will launch an affordable rental housing scheme under the PMAY for migrant workers/urban poor.
• Aim to convert government-funded housing in cities into affordable rental housing complexes.

Tax-related measures

• From May 14, 2020 till March 31, 2021, TDS and TCS rates reduced by 25%.
• All pending refunds to charitable trusts and non-corporate businesses, will be given immediately.
• Due date for all I-T returns for 2019-20 extended to November 30, 2020.

Provident fund-related measures

• Reduced from 12% to 10% for both, employees and employers, for the next three months.
• No change in employer contribution for government enterprises.
• However, employees (both, government and private) have to contribute only 10%.

Measures for standard MSMEs

• Rs 3 trillion worth of collateral-free automatic loans for four years.
• No principal repayment for 12 months.
• 100% credit guaranteed.
• Available till October 31, 2020.
• To benefit 4.5 million units.

For viable MSMEs

• Fund of fund to be created to infuse Rs 10,000 crores.
• Meant for those MSMEs that are viable but need hand-holding at this hour.
• To help expand capacity.

For stressed MSMEs

• Rs 20,000-crore worth subordinate debt-based scheme announced.
• 2,00,000 MSMEs to benefit.

Change in definition of MSMEs

Distinction between manufacturing and services MSMEs removed.

Note: The provisions given above are from announcements on May 13 and May 14, 2020. Further details of the package will be shared in tranches. 

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The developer community has welcomed the announcements.

“We welcome the government’s measures, for understanding our position in this difficult time and helping us maintain positive relations with our customers. The post-COVID scenario has been eased out for us and we would be looking forward to complete our projects under this new timeline, with due support from the RERA,” says Rajat Goel, JMD, MRG World.

“These measures will prevent the developers from entering into defaults. Even after the lockdown is lifted, the procurement of raw materials and presence of labour in full force, will be among certain issues leading to delay in work at construction sites. An extended timeline will provide an opportunity to developers and contractors, for planning out the way forward, upon understanding these situations closely,” says Harvinder Singh Sikka, MD, Sikka Group.

Coronavirus stimulus packages in India

The centre and the Reserve Bank of India (RBI) have announced several measures in the past, to support the economy as analysts forecast that a prolonged national lockdown to counter the Coronavirus outbreak might push India’s already-ailing economic growth to a record three-decade low.

The number of infections in India has reached to  73,981  while the death toll has touched 2,408 as on May 12, 2020.

After the central government announced a USD 22.6-billion (Rs 1.7 lakh crore) stimulus package, to provide direct cash transfers and food security measures to millions of poor people left vulnerable by the lockdown, the RBI announced a 75-basis point reduction in its interest rate, to bring it down to 4.40%, after an emergency meeting via video-conference of its monetary policy committee (MPC) on March 27, 2020.

A nation-wide lockdown that has forced India’s 1.3-billion people to stay indoors leaving millions of low-income households, which depend on daily wages to maintain their livelihood in Asia’s third-largest economy, most vulnerable while also battering economic activity in the country and bringing many a corporations on the brink of insolvency.

How will Coronavirus impact the Indian economy?

India’s growth fell to an over six-year low of 4.7% in October-December 2019, and is likely to fall to 2.4% in January-March 2020, says ICRA. Rating agency Moody’s, on the other hand, projected job losses to accelerate across countries in the aftermath of COVID-19, resulting in widespread loss of income for businesses and individuals.

Government’s USD 22.6-billion stimulus package against Corona

Under the previously announced USD 22.6-billion stimulus package, the centre would top-up the 5 kgs of grain that low-income households earn per month at a heavily subsidised rate, with an additional 5 kg of grain per person for the next three months for free. Each household would also get 1 kg of pulses during the period, without any cost. The move is likely to help 800 million people, finance minister Nirmala Sitharaman said. On the cash transfer front, it would hand out free cooking gas cylinders to 83 million families, a one-time cash transfer of USD 13.31 (Rs 1,000) to 30 million senior citizens and USD 6.65 (Rs 500) a month to about 200 million poor women for next three months.

International Coronavirus stimulus packages

The lockdown: As of May 12, 2020, nearly half the world’s population was under some form of restriction. China, France, Italy, New Zealand, Poland and the UK have implemented the most restrictive mass quarantines. China’s Wuhan, where the virus first appeared, on the other hand is now on it way to opening up after successfully countering the growth of the virus.

Global virus aid

RBI’s USD 50-billion liquidity booster against COVID-19

The RBI also announced its biggest rate cut since 2009, along with key measures to boost liquidity in the banking system to the tune of USD 50 billion (Rs 3.7 lakh crore) and a three-month moratorium on loan repayments, covering all banks and shadow lenders starting March 1, 2020. These remedies, by far are the most sweeping steps by the central bank in the time of crisis, and is expected to boost liquidity and ease stress in the banking sector, which has been affected by an ongoing crisis in NBFCs, even before the contagion spread.

“Such steps, in turn, will go a long way to prevent financial stress in the real economy and ensure continuity of businesses and provide relief to borrowers in these extraordinary times,” Reserve Bank of India governor Shaktikanta Das said in an online broadcast, adding that individuals or corporates missing interest payments during the moratorium would not be considered as defaulters.

“The apex bank has checked all the required boxes of rate cut, liquidity infusion and moratorium. These steps will help the economy to stay stable despite the lockdown and economic disruption,” said Shishir Baijal, CMD, Knight Frank India. “The moratorium of three months for all term loans and deferment of interest on working capital by three months, will be helpful at this point, when most businesses are unable to have a steady cash flow,” he added.

According to Ramesh Nair, CEO and country head of JLL India, the government’s stimulus package to counter the Coronavirus outbreak would help construction workers. On the RBI’s move, offering three-month moratorium on payment of term loans outstanding as of March 1, 2020, he said: “This shows the central bank’s willingness to use all the instruments at its disposal, to mitigate the impact of a global pandemic on the functioning and the stability of the Indian economy and the financial sector.”

The move would, among other things, greatly help the real estate, the second-biggest employment generating sector in India, to bear the economic fallout of the pandemic. Growth in real estate has already slowed to a record low in India amid rising cases of insolvency, project delays amid tightening liquidity conditions and muted consumer demand.

“The injected liquidity of USD 50 billion of cash, along with the three-month moratorium on all term loans by financial institutions, will alleviate short-term liquidity concerns and help developers, as well as home buyers survive in these uncertain times,” says Nair. While stating that the immediate transmission of the rate cuts to the home buyer will boost consumer sentiment, Nair adds that financial institutions have lent an estimated Rs 20 lakh cores as of March 2020 for home purchases.

Data available with PropTiger.com indicate housing sales in India’s nine prime residential markets fell by 30% in October-December 2019, as consumer sentiment dipped. A demand slowdown has also meant that real estate developers have accumulated unsold inventory worth Rs 6 lakh crores in these markets.

“The past few years have not been kind towards the residential real estate sector, as it continues to struggle under the grip of severe liquidity crisis, unsold inventory and unfinished projects. We are glad to see  that the government and the RBI are working together, to combat the slowing GDP growth and inflation and help the real estate sector as it forms the backbone of several other sectors,” says Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure Limited.

“These new announcements will also help lift the home buyer sentiment, kick-starting the demand cycle for mid-range homes, as well as affordable housing,” says Dutt, adding that a lot of people would consider investing in property, because of the stability it offers in the long-term, especially in the wake of the stock market witnessing a lot of volatility in these times of uncertainty.

Read also : Property rates & trends in Nalasopara west, Mumbai

While the cost of home purchases would significantly go down for home buyers, as home loans are likely to become cheaper, experts rule out any remarkable downward movement in property prices.  “Depending upon the duration and depth of the current crisis, prices may or may not see a downward movement, as on one hand the holding cost of the developers will go up, while on the other, the pressure to liquidate unsold inventory will increase. Therefore, it would be too early to predict the extent of price change in the near to medium term,” says Anurag Mathur, CEO, Savills India.

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