The coronavirus outbreak has had a debilitating effect on the real estate industry with almost 65% flat purchasers defaulting on instalments since last week, said MCHI-Credai, the apex body representing over 1,400 builders in the Mumbai metropolitan region (MMR).
Worse, with the shutting of malls, there are already indications that retail tenants will stop paying rents to mall owners. This, in turn, will have a cascading effect as mall owners will be unable to service their loans to be paid to banks.
“Since June 2019, on an average 25-30% flat buyers of any project were defaulting on installment payment on the due date. However, after the outbreak of COVID 19 pandemic, the situation has become critical with almost 65% customers defaulting in paying their installments linked to construction,” said MCHI-Credai. There are 10,200 residential projects in the MMR registered under the housing regulator, MahaRERA, with a construction area of around 50 million sq ft.
“It is a grim situation and will lead to the complete collapse of the industry,” MCHI-Credai president Nayan Shah told TOI. “The feedback we have been receiving from our members is alarming ever since the coronavirus threat. If buyers don’t pay us, how do we pay back our lenders?”
MCHI-Credai said it expected all construction activity to halt in the next two to three weeks as flat purchasers have virtually stopped paying instalments. “Flat purchasers are required to pay instalments based on construction linked milestones under RERA. However, due to the prevailing uncertainty, they are delaying the payments. If the Covid-19 situation continues to prevail, 80 lakh people will be affected in the industry,” it added.
The body’s vice-president Boman Irani said the coronavirus threat has further thrown the industry into turmoil. “We expect the government to intervene and defer payment of taxes and premiums for a year or else there will be a financial crisis in the industry,” he added.
MCHI-Credai has asked the state government to suspend property tax and payment of various premiums to the BMC for one year without interest. “All premiums payable to BMC and state government be reduced by 75% for five years and 0% stamp duty in respect of all new sale of flats for the next six months so that the public is encouraged to buy new houses,” it stated.
The government’s order to shut malls and multiplexes too has led to serious complications. In what is seen as a beginning of the crisis in the retail sector, Shoppers Stop, which is the anchor tenant in Dynamix Mall at Juhu, has written to the mall owner, YJ Realty and Aviation, part of the DB Group, that it will not pay its license fee for the next three months. Shoppers Stop occupies 60,000 sq ft in the mall and pays a monthly rent of Rs 70 lakh.
“As you are aware, the economy is already muted and outbreak of Covid 19 has impacted our business significantly…As our long-standing partner, we are confident you will support us at this critical moment and understand that it would be difficult for us to pay the license fee at the current rates,” said a letter written by Shoppers Stop to the mall owner. “In the event of the mall being shut down, no license fee and other charges shall be payable for the period during which the mall is shut down…the situation will be re-assessed jointly in three months’ time. Once the situation normalises, we will revert to the current payment terms,” it said.
A spokesperson of D B Group said, “If the rent is not paid, then we can’t service our loans not can pay property tax or salaries of our employees. The human tragedy is unbelievable.”
