Question Haunting Real Estate Industry Post Lockdown!

The Real Estate Industry has been under stress post-demonetization in 2016. This coupled with GST, RERA, IBC, NCLT, and others, has created a compliance structure that the industry was not used to. Many developers shut shop in the new environment and many are struggling to exist. we saw consolidation in the real estate industry where the small developer collaborated with the large and corporate developers for handholding and for assurance of completing the responsibility which he had undertaken before demonetization.

The industry was reeling under the pressure of lack of demand, liquidity crisis, financial defaults and compliance adherence before the corona pandemic broke in our country early this year (2020) which has brought the industry to a grinding halt.

Real Estate Industry is the second-largest contributor to GDP and is also the second-largest employer after agriculture. 250+ MSMEs form the supply chain to feed the industry which is a growth driver for the Indian economy.

While we are all struggling to fight this pandemic together with the Govt making bold decisions about the National Lockdown to save lives, saving livelihoods is going to be a bigger challenge post the lockdown is over.

Real Estate Industry is under tremendous pressure on at least 3 accounts –

  1. Demand
  2. Liquidity
  3. Labour

But beyond the above 3, there is a bigger worry which developers have – that of cancellation of bookings made before corona pandemic. And this time the reason is not that the customer has lost faith in the developer but the reason is that his finances are under threat as there is a fear of losing the job, a salary cut no increment. The buyer who had made a decision presuming that he will get a salary hike or his DA (dearness allowance – for govt servants) will increase are all shattered.

Salary cuts are being announced across all industries and the govt has already announced NO DA increase this year. Over and above this the small saving rates have decreased considerably whereas the home loan auto loan rates have not come down in the same proportion. All this put together makes us believe that the real estate buyer will have less money in his pocket to dispense. Add to this the healthcare threat and money required to deal with it will make people keep liquid money to meet contingencies.

I am crowded with loads and loads of questions from the real estate buyer to explain:

How do I cancel my flat booking?

The legal right and recourse. I am underlining the process and procedure listed under the RERA act and its provisions.

Cancelling a booking is not a difficult procedure. The buyer has to make a written request to the developer and also keep paperwork ready viz receipts, BBA, etc which was issued by the developer in the buying process.

RERA empowers the homebuyer to cancel an allotment of the apartment booked with a builder at any stage even if there is no default on the part of the developer. It binds the builder to return the money collected from the buyers within 45 days of such cancellation after deducting the booking amount. The builder can deduct 10% of the cost of the apartment and refund the balance amount. The GST paid by the buyer has also to be refunded.”

Thankfully the buyer’s money is protected.

Cancellation of booking normally happens when there is a sudden financial crisis encountered by the buyer or a legal issue or sometimes with the sudden demise of the buyer or if the developer defaults by delay in handing over possession.

In the post, corona time cancellation is likely to happen because of a lot of uncertainty caused by job loss, salary cuts, no increments, and fear of a health crisis.

Cancellation never adds to the benefit of either party be it, the buyer or seller,

How to deal with your booking post corona the pandemic is over?

The buyer of course is surrounded by uncertainty but the truth is that the developer is in bigger trouble at the moment. Real Estate Industry has not been doing well but with RERA in action, the commitment by the developer to hand possession in time is pressing him to sell – generate revenue – build and deliver on time.

How to handle urgencies and finances to sustain your purchase decision?

The financial crisis imposed by Corona has left builders shattered and the community is forced to plead with compliance authorities like RERA to use the Force Majeure clause and give extra time to complete projects. The community is also pleading to make a provision in case of cancellation of the money to be refunded at the time of possession or if the developer can sell the said unit then to refund on receipt of money from fresh booking, whichever is earlier.

How can the developer help with your continuity of booking decisions?

I am certain that the authorities will be evaluating the buyer-seller situation and will then make a decision that helps both parties.

Here are guidelines which I suggest to the buyer to mitigate the situation:-

  1. Dear buyer your buying decision was well considered after deliberating your finances, your family needs, and your plans. Kindly remember the process and do not take Knee Jerk decisions.
  2. If you are not facing any financial issues and are nervous because of hearsay please speak to the developer and get your confidence back
  3. If you are facing any uncertainty regarding your job, your salary, your business, or any type of financial problem please evaluate by putting all data on paper. We tend to be fearful in such times and sometimes do not get facts correct. If there is a genuine problem please meet the developer and discuss it with absolute honesty. The Banks have already given 3-months moratorium for paying EMIs (April-June2020) and I get to know another 3-month moratorium is around the corner
  4. Real Estate Industry is an important economic driver and the Govt has floated several policies to facilitate the supply side for the developer. It is expected that the Govt will fuel the demand side by reducing the Home Loan Rate or By reducing GST or reducing stamp duty or giving a tax benefit on the interest paid. Wait and be informed. You may lose these SOPs if you cancel your booking impulsively

Here are guidelines which I suggest to the seller to mitigate the situation:-

  1. Please connect and communicate with your customers and transparently share your plans so as to give confidence to the buyer
  2. Pass on benefits if the Govt facilitates the demand side. Simply share news and information so that the buyer is not misinformed
  3. Presuming a customer is facing a financial glitch try to find a practical solution so that he can continue with his booking and you don’t hamper your cash flows

Selling real estate involves a lot of costs starting from Marketing – Brokerage – Sales Staff & Incentives – Staff and Customer Welfare – The cost of building a sample apartment etc.

The buyer knows this all and the seller must also be aware. Cancelling a booking is a cost and both parties tend to lose.

Please be practical in your approach and then make a decision.

Sanjeev Kathuria
Founder, Author & CEO at Torbit Consulting

Mr. Sanjeev Kathuria is an entrepreneur and accomplished expert in a variety of areas pertaining to real estate such as land buying, liasoning, marketing, sales, construction and development. His chief interests lie in strategic sales and marketing as well as business development. He has sold inventory worth Rs. 13,000 crores over the last decade. Mr. Sanjeev’s strong value system and his integrity and commitment to his customers has been appreciated by everybody he has worked with. His new initiative of delivering quality content about real estate has been lauded by numerous industrialists and industry leaders.

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