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CREDAI West Bengal writes to Union Finance Minister seeking reliefs for Real Estate industry

CREDAI West Bengal writes to Union Finance Minister seeking reliefs for Real Estate industry

India Blooms News Service | @indiablooms | 09 Apr 2020, 07:33 pm

Kolkata/IBNS: The West Bengal chapter of the Confederation of Real Estate Developers' Associations of India (CREDAI) has approached the Union Finance Minister Nirmala Sitharaman for relief to aid the real estate industry in the backdrop of the Covid 19 pandemic.

CREDAI is the apex body of private real estate developers representing  20,000 members spread across 21 state level chapters and 220 city level chapters in India .

Excerpts from the letter written to the Union Finance Minister by the president of the West Bengal chapter, Sushil Mohta.

"These unprecedented never before events and  the lockdown of the country shall be causing severe strain on our already depleted and frugal cash flows. 

It is in this background that we submit below the recommendation to help real estate to survive the lockdown as it must, contributing 10% of GDP and being the second largest employer with 50 million workers being dependent on it.

Part A of the recommendations are absolutely critical for the real estate sector to emerge from lockdown with any possibility of protecting 50 million jobs and lakhs of crore of home buyers’ and small business equity tied up in purchase of shops and offices.

Part B of the recommendations contain facilitative measures which when added to the critical interventions would enhance the effect and speed of recovery from the lockdown.

Part A -  Critical Policy Interventions for Real Estate to survive lockdown

Deferment of GST and Income Tax Payments:

Real estate industry is facing complete evaporation of demand for homes, shops and offices due to lockdown.

Even the existing buyers are in no position to pay their due installments on purchases of homes, offices and shops.

The real estate industry is not expected to recover in the next 12 to 24 months even after the lockdown is lifted.

Hence, it is imperative that payment of all taxes including Income Tax, GST, etc. due in the months of March, April and May, may be deferred by a minimum of 180 days.

Interest and Penalty on Delayed Payment of GST  and Income Tax up to March 31, 2021 to be Waived:

There is no fresh demand for real estate due to lockdown.

Even the existing leases and rentals cannot be realized due to lockdown.

On the other hand, in the RERA regime, it is incumbent upon the developers to honour their commitments as regards delivery to the consumers. As an industry we are also committed to avoiding layoffs.

Hence, if there is a delay in payment of income tax or GST in a real estate project, it is not owing to an act of omission by the developer but due to the circumstances that are beyond our control.

Therefore, it would be both necessary and fair that delays in payment of tax dues of all descriptions until March 31, 2021 to begin with are not burdened with the demand of interest and penalty and are waived altogether.

Moratorium of six  months on all dues and overdue instalments/EMI/Interest of all loans, including term loans, which are outstanding as on 1st March 2020:

In view of the lockdown, cash flows to real estate projects have completely dried up and hence, payments to meet debt service comprising both interest and principal obligations are infeasible and would jeopardise the business continuity beyond repair at this juncture.

Fresh sales are impossible. Nor can the home buyer be expected to meet their payment obligations to developers at this time.

Given the severity of the shock, the current moratorium of three months permitted by Governor, RBI on March 27, 2020 may not be adequate for real estate.

Hence, banks, FIs and NBFCs including HFCs may be directed that there would be  moratorium of six months, in respect of all term loans outstanding as on March 1, 2020 including  both the interest the principal repayment liabilities on all term loans to real estate sector. 

In order that the above measured addressed the dire financial situation arising out of lockdown, it may also be clarified that ‘Term Loan’  includes Working Capital Term Loan (WCTL) or a Funded Interest Term Loan (FITL) or Debentures subscribed by the Lending Institution.

Each and every business and organization is affected by this natural disaster and subsequent national lock down.

Hence, the above RBI Policy needs to be implemented across the board uniformly by all lending institutions for all the borrowers.

Interest and principal instalments payable on ‘term loans’ (as defined in the para 7.2 above) for the period 1st March 2020 to 31st August 2020, may be mandatorily capitalized by all banks, FIs, NBFCs and HFCs.

This capitalized amount may be treated as an advance and should be payable at the end of the period of term loan.  All existing ‘term loans’ to real estate may be extended by six months on these terms and conditions.

In the case of deferment as outlined above,  Para 7 of the press release by RBI quoted below may be made fully applicable-

'..the rescheduling of payments will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries.'

This request is being made as cash flows cannot be expected to materialize until well after a modicum of normalcy returns to the economy, which is unlikely at least for the period of moratorium of three months.

The short point is that the classification of the account should remain at standstill and should not to be allowed to slip during the period of moratorium of three months.

In giving administrative effect to Para 7 of the Press Release, it may be explicitly stated that  accounts which were not NPA as on March 1, 2020 would not get classified as NPA during the three month moratorium.

Further, if an account was SMA-0, SMA-1 or SMA-2 as on March 1, 2020, it would continue in its respective SMA-0, SMA-1 or SMA-2 category without any slippage to a lower category for the period the moratorium of six months from March 1, 2020.

Some of the lending institutions are not allowing instalment/EMI/interest moratorium to accounts classified as SMA1/2/3 or NPA.

As impairment of cash flow has affected these borrowers alike, it is very important imperative for this policy to cover all accounts including those who have been classified as SMA1/2/3 or NPA and their status quo to be maintained until the May 31st, 2020.

Moratorium of six months on Interest payment on Capital Market Instruments by SEBI:

Real estate projects seek funding on the basis of capital market instruments from financial intermediaries including banks, NBFCs, Mutual Funds, Equity and :Venture capitalists.

These commitments cannot be met at this time in view of the real estate being completely starved of fresh cash flows.

SEBI by virtue of circular No. SEBI/HO/IMD/DF1/CIR/P/2020/58 March 30, 2020 has extended the due date for regulatory filings for AIFs and VCFs for the periods ending March 31, 2020 and April 30, 2020 by two months, as a partial recognition of this difficulty.

Similarly, vide circular no. SEBI/ HO/ MIRSD/ CRADT/ CIR/ P/ 2020/53 of March 30,2020 Credit Rating Agencies have been advised not to consider delay in servicing the debt due to lockdown as default for a period of three months.

We wish to emphasise that following the lockdown, real estate business will take a period of not less than six months to mobilise workers and materials.

During these six months, the real estate companies will need to use all the cash they can mobilize to meet the expenses towards business continuity.

Therefore, SEBI may also allow a period of six months beginning March 1, 2020 during which delays in servicing of debt on capital market instruments will not constitute default.

Regulatory filings and Credit Rating Agencies may also be accordingly mandated not to treat the period of six months beginning March 1, 2020 as default.

One Time Restructuring:

The current situation is much worse than 2008 Global Financial Crisis (GFC) when RBI permitted a One-Time Restructuring (OTR) saving hundreds of industries and lakhs of jobs.

Hence, where real estate project is cash flow positive as defined by Finance Ministry for the SWAMIH Fund and One-Time Restructuring (OTR) is more beneficial in the interest of the Lending Institutions, Borrower and the Apartment purchasers, a onetime restructuring scheme as was permitted by RBI in 2008 may be quickly instituted by all lending institutions.

No fresh insolvency proceedings before NCLT for a period of one year:

At this time of lockdown, real estate companies are struggling to ensure the continuity of their business by conserving the available cash to meet the emergency situations.

It may, therefore, be inadvertently the case that some payments are delayed for a while.

Such a delay is not default in the present circumstances. Hence, no fresh insolvency proceeding under the Insolvency Law may be allowed to be entertained for a minimum of one year after the lifting of lockdown.

Part B - Other Measures

Extending Approvals, Licenses and No-Objection Certificates:

The Real Estate sector operates with approvals granted by Land Administration, local bodies, municipal authorities, town planning authorities, Ministry of Environment and Forests, Fire and Electricity Authorities etc.

After the coming into existence of RERA, project obligations are submitted to the Real Estate Regulatory Authorities with penal and other consequences.

The projects with existing approvals cannot be proceeded with due to lockdown.

In case of real estate, even after the lockdown is lifted it will take a minimum of six months to mobilize labour and materials.

Hence, it is requested that all the existing approvals, licenses and no-objection certificates accorded to real estate projects by whatever name called may be extended by a period of six months to start with by issuing orders under the Disaster Management Act itself by the Central Government.

GST to be payable on collection instead of invoice value:

Due to lockdown, real estate customers such as purchasers of homes, offices and shops are forced to use their own revenue streams to ensure survival.

Such individuals do not even have access to financial institutions at the moment.

Hence, the principle of paying GST on the raising of invoices needs to be replaced for the time being by shifting the onus to when the amounts are received from the buyers rather than when the invoice is raised.

Deferment of PF and ESI Contribution:

All CREDAI members during the period of lockdown have been urged to ensure that the wages of employees and labour are fully protected.

The real estate projects also have to incur other business continuity expenses without any cash flow in sight.

Hence, it is requested that the contributions for the next six months beginning March 1, 2020 towards Employees Provident Fund and Employees State Insurance be deferred by one year.

We at CREDAI are conscious of our responsibility in nation’s struggle to combat the COVID-19 calamity.

We assure you that the above measures are intended precisely to help real estate contribute its utmost to that struggle by supporting millions of our workers and customers in their most trying of circumstances.

Waiver in Minimam Demand load charges and duties etc for electrcity:

Most of the organisations, and  businesses due to the complete lockdown, the electricity consumption is negligible.

For High Tension (HT) connection, as per law, the HT consumer has to give a minimum demand commitment and the bill is raised on the consumer for  minimum demand whether electricity is consumed or not.

Thus, considering the above, we request certain relief in the power sector for the time being to enable us to survive.

We look forward to relief for the following - a)Waiver of Fixed Maximum Demand Charges on the Agreemental Load which is 384/month/KVA for HT and 255/month/KVA for LT, b) Waiver of 17.5% Government Duty levied for HT customers, and c) Waiver of penalty for not reaching the minimum demand of the maximum agreed demand.

Therefore, it is our humble prayer for your kind intervention in the above matter and request you to  consider this on urgent basis and direct the CESC and various DISCOM’s to pass on the waivers to their consumers in the forthcoming electricity bills.

Waiver/ Reductions in Municipal Taxes:

It is needless to mention many of our tenants particular commercial properties will face closure of business and hardship, and as a result, we will have to allow them waiver of rent even after lockdown is lifted for a considerable period, which will be a minimum of 6 months.

Similarly the occupancy rate in hotels, resorts, restaurants, cinemas will be negligible for a considerable period, even after lockdown is lifted.

In most of Municipal areas, a sizeable component of municipal tax in commercial properties is due to tenancy and commercial use factors. In the given senerios we are having practically no use of properties by any one.

In the circumstances, we request for a waiver of Municipal tax for the period of lock down for all kinds of commercial properties and 75% waiver of municipal tax for the next six (6) months on  reopening after the lockdown period is over.

Government of India has already declared COVID-19 as pandemic and an unforeseen situation amounting to ‘Force Major’

In most of the countries and states the respective Government are giving different kinds of financial assistance, subsidies, waiver to the business houses.

The Government and public authorities are always our partners and the industry have   always been faithful, paying the share of government / public authority .

Time has come where the Government as a partner of the industry needs to ‘chip in’ and allow the waiver of taxes for the period the lockdown continues."

The West Bengal chapter of CREDAI has also marked copies of the letter to PM Narendra Modi, the Union Minister of Housing and Urban Affairs, Governor of Reserve Bank of India and Chairman of SEBI.

 

 

CREDAI West Bengal writes to Union Finance Minister seeking reliefs for Real Estate industry

India Blooms News Service
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