What RERA timeline extension means for developers, homebuyers?
The Finance Minister, Nirmala Sitharaman announced that due to the effect of COVID-19 pandemic, the time limit for the completion of real estate projects will be extended by up to six months. The Center is advising both states and union territories to treat the Pandemic as an ‘act of God’ and increase the project completion dates. Although, this will offer help for real estate developers in the execution of projects because no lawsuits may be filed against them, nor will they be liable to pay any fines. Homebuyers are not likely to receive any specific relief in the form of interest / EMI exemptions to buyers. The law safeguards their confidence in seeing their homes completed within a few months. With that directive, if and when provided by the particular states, all projects in those states will be extended.
Effect on sector:
The lock down, placed on 25 March to curb the spread of corona virus, has a significant effect on the real real estate and building firms. Huge number of employees coming from villages in other states have relocated back when the lockout started. It will provide some extra space to ventures when they slowly resume activities after the lock down constraints have been relaxed.
What are the penalties:
In real estate regulations, investors are subject to a penalty if they refuse to follow the building completion deadlines. They will have to pay a fee equivalent to 10% of the expense of the project if they do not report their current projects with the Real Estate Regulatory Authority (RERA). Likewise, homebuyers are often liable for not paying any payments owed to the builder. Regulators may be asked to extend the deadline given by real estate developers to complete the project so that they will not default on incurring fines. Likewise, homebuyers may even be given an option to compensate whatever balance is owed to the builder.
According to Sitharaman, these steps would de-stress real estate developers and enable the execution of ventures such that homebuyers can receive booked houses with new deadlines. Developers asked for an extension of the RERA time limits and for Covid-19 to be included in the force majeure provision. The housing authority in Maharashtra has already given an extension of three months. The Government has declared liquidity support to non-bank borrowers by offering partial or absolute guarantees value of Rs 75.000 crore on investment in debt securities issued by these companies to enable them to generate capital. Non-banking finance companies, the major borrowers in the real estate market, have seen bad loans grow and are unable to collect money. Regulatory bodies in states including Maharashtra, Gujarat, Tamil Nadu, and Uttar Pradesh have provided both builders and customers an extension. Madhya Pradesh also extended the deadline by six months for the completion of listed projects to be finished after March 15.
Benefits to builders:
These benefits will allow six months for the project registration and execution of projects. Due to lack of immediate regulatory corrective action under the RERA Act 2016, there is also a risk that certain real estate developments may be delayed leading to litigation, etc. This growth eventually contributes to the delays in the delivery of apartments to homebuyers who have spent their entire savings in their new home. A notable change is the acceptance by the developer community of expanding project execution targets and other regulatory compliances under RERA by six months. They will be able to deliver homes to the home buyers within the new time frame.
Benefits to buyers:
The Government has declared that the extension of deadlines will safeguard the interest of customers when they get the house. Although, delayed by six months. Delay of only a few months is better than not having the home at all. Homebuyers will have to face further six months delay in delivery of the property. The consumer will have to face the extra burden of charging the rent for six months. Construction is related to the payment package for most customers. If there is no on-site construction activity for 3 months, there will be no claim for payment from the developer to the customer for that duration. Indirectly, the customer will get relaxation. Furthermore, the support given to the builders is just for the timetables of the project and not on the financial side. They will have to start meeting their borrowers financial commitments.