Impacts of COVID-19 on REAL ESTATE
COVID-19 has
brought the Real Estate Industry to a logjam Position. Impact of COVID-19 on
economy has pushed sentiments to its lowest level. And now recovery curve of
the Lockdown will depend upon the Fiscal Stimulus rolled out by the Government.
Let’s Imagine a
situation where 3 years old law tries to fix its position in the Judicial
System and people as well and all of sudden a Virus crosses its way only to
prevent it from doing so. Yes, it is Real Estate (Regulation and Development)
Act, 2017. The Act came into force in the year 2017 and till the beginning of
2020 lacuna of Judgments been passed improving relations and installing
transparency between Developers/Builders and Buyers with speedy disposal of
Complaints as well as Appeals.
Coronavirus
caused site visit to almost non-existent, and the Business world is scaling
down their workforce which will force many prospective buyers to wait for
clarity on their job security before making a final decision on the property
purchase. Project completion deadlines have also been extended which has pushed
completion further this will affect the buyers/purchasers who already invested
in the project and waiting for their turn to get possession in the near future. It
may also happen that Purchaser loses interest in their dream house. Due to
constructions halts and labor shortage, the Residential Sectors which already
had concerns of weak demand will find it difficult to launch new projects and
complete the ongoing ones.
A health
emergency that has force-launched the biggest ever “Work from home” experiment
globally and this practice will replace office spaces in the future. Occupancy
level in Office spaces will decline in the near term as people are adopting
remote working also social distancing will make it difficult for Employers to bring
all employees under one roof. Coronavirus has resulted in the closure of malls,
retail outlets, and entertainment venues. This will put future Commercial Real
Estate on hold. Even after the withdrawal of lockdown public will take time to
regain confidence in entering any public places like malls or entertainment
venues. Rules of social distancing will also play a big part in it.
“The impact of
Coronavirus has been unthinkable in its scope, investors are expected to remain
in wait and watch mode, with caution and risk aversion is expected to drive the
dominant behavior of institutional Real Estate investors over the next few
quarters”, said Ramesh Nair, CEO and Country Head, JLL India.
In this crisis
Builders will pin their hopes on Government support to shed their unsold stock.
Given the expected impact of the COVID-19 outbreak on the economy, Builders are
urging the Authorities to use around Rs. 1 Lakh Crore collected by Authorities
from Builder for the Building and Other Construction Workers’ Welfare (BOCW)
cess fund to provide for loss of wages and healthcare benefits to construction
workers. Cases of Insolvency of Builders might increase as the liquidity situation
worsens.
The Builders
will feel the most pressure as there will be no or less source of income. In this
scenario, a Developer offering a 20 percent discount would also have its own
set of challenges. The buyer pool may shrink going forward and discounts alone
may not do the trick. Deferred payment plans without subvention may become
popular. Builders will try to sell their unsold stock even at the Break-even
point (BEP).
In the backdrop
of on-going construction work getting impacted, given the unwarranted and an unusual event, the Government has already launched support measures by allowing
the Force Majeure clause to skip penalties over project delays. “Force Majeure”
under Section 6 of the Real Estate (Regulation and Development) Act which
provides for an extension of projects registration granted to promoters in case of
war, flood, drought, fire, cyclone, earthquake or any other calamity caused by
nature affecting the regular development of the Real Estate Project.
COVID-19 may
also, overburden the task of Authorities put up to solve disputes between
Developers and Purchasers. As it may get flooded with Complaints from
Purchaser’s for withdrawal from the project. Authorities on the other hand have to
apply Case management techniques and Time management
techniques as due to social distancing it cannot take risk of court flooding.
There will be limited matters per day with limited hours, even lawyers have to
cut short their arguments to save time. Authority will expect Lawyers as well
as Litigants to accept these changes Co-operate with it. This will sum up the
mood of buyers. More than paying extra bucks, buyers will prefer to avoid
project execution risks in this situation.
Post lockdown, the biggest challenge for the Real
Estate sector would be restarting the construction work because large numbers
of migrant laborers’ have gone back to their hometown. The Labourer may opt
for agricultural activity as monsoon has started and may take time to come
back.
"This article is authored by Advocate Ms. Hima Khuman . You can reach out to her at himakhuman@gmail.com."
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