Timeline Extension For Real Estate Projects Under RERA Due To Covid-19 And Its Future Impact.
During the initial days of the lockdown, the Ministry of Finance had designated the COVID-19 pandemic as a force majeure event under RERA and thereby unilaterally extended project completion deadlines by a period of 6 months.
With a strict lockdown in place in most parts of the country and the already emerging labour crisis, this seemed like a very sound albeit obvious decision. Even before the emergence of the COVID-19 pandemic, the real estate sector had already been under tremendous stress for a fairly significant period of time. Demonetization and soon after that the implementation of RERA; while both extremely positive for the industry in the long run, had in a way derailed the short term focus of many developers and homebuyers. The high GST rate of 12% further increased transactional costs specially when coupled with state determined stamp duty costs didn’t help the cause. Lastly, liquidity available to the industry from NBFC’s also dried up soon after the issues pertaining to IL&FS came to light. The covid-19 pandemic seems like the final nail in the proverbial coffin. However, it seems that having noticed the plight of the industry, certain steps have been taken to revive the sector and kickstart demand. Stamp duty has been reduced from 5% to 2% for a short time, GST rates are at 5% as opposed to the 12% beforehand and NBFC’s and banks have been recapitalized and encouraged to fund the sector albeit with a lot more caution. In addition to the additional time provided to developers to complete their ongoing projects under RERA, these measures will help relieve the stress felt by the sector and ensure homebuyers are able to occupy their homes soon.
The term force majeure is usually defined under section 6 as “A case of flood, war, drought, fire, cyclone, earthquake or any other calamity caused by affecting the regular development of the real estate project.” Hence, in order to seek extension of a real estate project’s registration, the development of the real estate project must have necessarily been affected by one of the events outlined in the definition of ‘force majeure’. Keeping aside the letter of the law for a moment, the the law looks at a force majeure event as any event that is outside of the control of either party that in any way affects their ability to comply with the terms of a contract. In relation to the timely completion of real estate projects, the pandemic and the subsequent lockdown imposed by State and Central governments surely qualifies as a force majeure event. While this could have been argued in matters of litigation, RERA took this decision proactively so as to ensure that no litigation takes place to begin with and particularly protects those that did not have the clause clearly mentioned in their agreement.
While the government in various states permitted construction work to commence by following strict guidelines, the challenge of sourcing raw materials continues to haunt developers even today. Due to the widely reported migrant labour crisis, the availability of labour in urban areas is scarce. As an extremely labour driven industry, this has become a cause for concern as optimum labour levels are not being maintained at construction sites thereby causing delays to construction activities. Until such time that the labour feels comfortable returning to urban areas, there is no doubt that construction activities will continue to remain mooted. Their decisions to return will no doubt be influenced by the level of threat posed by the virus and that continues to remain out of our control as developers.
As one of the largest contributors to our countries GDP and employment, the realty sector will play a key role in reviving the economy from its current slump. For any revival, consumerism must return to the economy. Job security will play a huge role in this return. Even though the RBI has announced several rate cuts, any positive effect of the move on buyer sentiment is likely to be visible only in the medium term. For the realty sector, the biggest positive to come out of this pandemic is that many individuals have realised the value of owning a home.
