Apr 23, 2020

Need for Government initiatives for the Real Estate sector

COVID 19. The world has been hit by the outbreak of a novel disease called the ‘Corona Virus Disease’ (“Covid-19“). While the spread of this virus is unprecedented, without any confirmed vaccine or cure and with the growing number of cases every day in India, the Ministry of Home Affairs, Government of India (“MHA“), in a brave move, announced the nation wide lockdown on March 24, 2020 for 21 (twenty one) days with effect from March 25, 2020, which lockdown has now been extended till May 03, 2020 vide MHA’s order dated April 14, 2020, in order to contain the Covid-19 spread across the country. The various State governments, wherein, the positive cases of Covid-19 were reported, even prior to the lockdown order, had started taking measures to curtail any further deterioration in the situation, including the announcement of various orders and guidelines such as shutting down the state borders, suspension of flights, orders under Section 144 of Code of Criminal Procedure, 1908 (prohibiting assembly of more than 4 individuals), announcement of work from home policies, etc. As a result of these measures, several businesses have been adversely affected. Due to the lock down, the real estate projects which were in various stages of the construction, development and completion have come to a standstill. The period for which the pandemic will prolong is uncertain. The impact of the lock down on the real estate sector is going to be huge and one will see a lot of real estate insolvencies/ bankruptcy in the times to come.

Need of the hour.

It is critical for the State governments to immediately implement significant initiatives for the real estate sector to mitigate the hardship being faced by the developers. The governments in some states have been proactive in granting reliefs to the developers. The Real Estate Regulatory Authorities constituted under the Real Estate (Regulation & Development) Act, 2016 (“RERA“) in the states of Maharashtra and Karnataka have decided that the projects whose completion date was after March 15, 2020, the period of validity of their registration under RERA shall be extended by a period of 3 (three) months. Further, the Karnataka Real Estate Regulatory Authority and the Maharashtra Real Estate Regulatory Authority have also extended the time limits for all statutory compliances under RERA which are due in the months of March, April and May, to June 30, 2020. It is the expectation of the developers that Real Estate Regulatory Authorities in their respective States will extend the completion timelines.

The MHA vide its order dated April 15, 2020 (“Order“), inter-alia, has permitted the construction activities such as the construction of roads, irrigation projects, buildings and all kind of industrial project, including MSME, in rural areas, and all kinds of projects in industrial estates, effective April 20, 2020. The Order further permits the continuation of works in the construction projects, within the limits of municipal corporations and municipalities, where the workers are available on the site and no workers are required to be bought in from outside. As per the said Order, the activities will have to be operationalized by the states/ union territories/ district administrations based on the strict compliance to existing guidelines on the lockdown measures.

Nonetheless, for the real estate sector, which is one of largest employer in the country, the State governments must take immediate initiatives to incentivize the developers to commence the development / construction activities. We have listed below some of the key policy measures which the State governments must consider for real estate sector:

(i) Validity of approvals:

The governments must extend validity of all the licenses, permissions, consents and other approvals granted to the developers by a minimum period of 1(one) year. Such extension in the validity of the licenses and approvals should be automatic, without any requirement of the developers approaching authorities and without the payment of any renewal fees or charges.

(ii) Moratorium for making the land payments:

The investment in the real estate sector and the purchase of the properties has been considered as a safe investment option by the Indians. Due to the Covid-19 situation and uncertainties attached to it, the investors/ home buyers will now be more cautious in making any investments including investment in the real estate sector and such cautious approach will certainly affect the cash flows for the real estate developers and will lead to the developers defaulting in making land payments to the government. To ease the hardships for the developers, the developers who have been allotted the land by the government authorities (for example Noida Authority, Greater Noida Authority, HSIIDC etc.), a one-time moratorium for making the land payments must be granted. Such moratorium should be granted without payment of any interest.

(iii) Moratorium for making the approvals payments:

The developers should be granted a deferment in making the payments to the authorities for the approvals (for example: payment of license fees, external development charges, internal development charges, infrastructure development charges, other development charges), without payment of any interest/ penalties. Further, in such a situation, the authorities should not invoke the bank guarantees/ other securities submitted by the developers for securing such approvals payments. The validity of the bank guarantees submitted by the developers should also be extended by the banks without any additional burden on the developers. The State of Haryana vide its memo dated April 09, 2020 has requested all the government departments, corporations, government companies, cooperative institutions, boards and authorities collecting various types of dues such as statutory payments, service charges in lieu of different types of services offered, loan recovery, interest payments etc., to defer all payments that were due on or after March 15, 2020 till April 30, 2020; not to levy any penalty on dues in any form, whether surcharge or penal interest; and not to take any coercive actions to recover any dues.

(iv) Extension of RERA Registration:

The Real Estate Regulatory Authorities under RERA in all the States should extend the period of validity of registration under RERA and the time limits for all statutory compliances under RERA.

(v) Revision in the circle rate:

Even before the Covid 19 situation, there has been a mismatch in the circle rate and market value of the properties. This mismatch has been predominantly due to the fact that the real estate market has always witnessed only upwards revisions in the circle rate of properties by the governments while, the actual market value of the property sees various downward revisions on account of various factors (Covid-19 is going to be one of the factor). It is the need of the hour that the governments must rationalize and reduce the circle rates to bring them at par with the market value.

(vi) Stamp Duty on the lease deeds:

Post the lockdown, a lot of efforts will be required for bringing back the demand of commercial/ office/ retail space to normal. It is expected that post the lock down, there will be a delay in decision making for new commercial, offices and retail leasing. In a bid to make new leasing commercially lucrative for the organizations and in turn increasing the economic activity and job creation, waiver of stamp duty on the leases for a period of 1(one) year be considered by the governments.

(vii) Stamp Duty on the sale deeds/ conveyance deeds:

The governments must formulate a time bound scheme whereby a rebate be granted of 50% on the stamp duty payable on the sale deeds/ conveyance deeds. Such decision of the governments will be seen as a positive step by the developers as well as the home buyers and may help revive the consumer sentiments and increase the transaction in the residential projects.

(viii) Stamp Duty on the joint development arrangements:

The governments must reduce the stamp duty payable on the joint development agreements/ collaboration agreement/ development agreements to not more than 1% (one percent) of the value of the land, at least for a period of 1 (one) year.

(ix) Stamp Duty on the mortgage deeds:

The governments must lower the stamp duty rates on the mortgage deeds, and have ceiling on such stamp duty, with respect to the loan being availed by the developers within period of 1(one) year after the lock down has been completely lifted.

(x) Extension of timelines for the payment of the property taxes:

The governments must grant extension for the payment of the property taxes on all the properties/projects under development without payment of any penalty/ penal interest.

Although, there is lots to be done towards for real estate sector, the above will certainly help the sector to have a kick start…

The views and opinions expressed in this article are those of the authors alone and do not necessarily reflect the official position of AZB & Partners, or the position of any other agency, organization, employer or company.

Hardeep Sachdeva, Senior Partner
Abhishek Awasthi, Partner





These are the views and opinions of the author(s) and do not necessarily reflect the views of the Firm. This article is intended for general information only and does not constitute legal or other advice and you acknowledge that there is no relationship (implied, legal or fiduciary) between you and the author/AZB. AZB does not claim that the article's content or information is accurate, correct or complete, and disclaims all liability for any loss or damage caused through error or omission.