Coronavirus Impact: Labour Crisis May Upset Project Delivery Deadlines

India’s residential realty market, the second-largest employment generating sector in the country, is busy preparing itself to confront the impact caused by the Coronavirus pandemic, which has so far infected more than three-and-a-half million people across the globe, and the subsequent lockdown.

Under a lockdown to flatten the curve of the Coronavirus spread in the country, the Indian government, starting March 25, 2020, imposed severe restrictions on the movement of its 1.3 billion people. Apart from a complete halt to work, the  lockdown, which remained in force till June 7, also led to an unexpected outcome - thousands of migrant workers who lost their incomes overnight, started returning to their native villages, from India’s major cities, amid a complete halt of transport mediums. Together, these two factors would be detrimental to real estate, which is largely dependent on this workforce for the implementation of its plans.

Experts are united in their opinion about the adverse impact the outbreak would have, on demand and supply in the short-to-medium term. The repercussions would be much worse, they say, if efforts to arrest the virus do not yield the desired results, resulting in prolonged lockdowns globally. A labour shortage could only make matters worse, upsetting all efforts made by the developer community to deliver housing projects on time.

The partial relief that the government has granted, by allowing construction from April 15, 2020, in areas not listed as contagion hotspots, would also have only limited impact. According to Rohit Gera, MD, Gera Developments, the complete halt of construction work, makes it quite hard to restart once the momentum of activity and momentum of cash-flows is lost.

Recall here that 80 per cent of the 44 million workers engaged currently in India's construction sector are migrant workers.  

After India introduced the real estate law in 2016 to regulate the sector, builders were forced to adopt a more reserved approach, for fear of monetary repercussions.

Under the provisions of the Real Estate (Regulation & Development) Act, 2016 (known as RERA) , developers would be subjected to hard penalties in case of project delays.

According to Section 59 of the law, a developer will be liable to pay as penalty, 10 per cent of his project’s total cost, if he fails to register himself with the RERA. In case of any non-compliance, a developer may have to serve a jail term in addition to paying the penalty. If these penalties weren’t deterrent enough, a slowdown-induced liquidity shortage, which was aggravated by numerous defaults by developers, as well as non-banking financial institutions, made it almost impossible for builders to get funds to launch their new schemes.

In 2019, the non-banking finance crisis also dried up the most crucial source of funding for the residential segment.    

According to PropTiger.com numbers, barring some sporadic exceptions, new project launches have consistently declined since states notified their versions of the RERA, starting 2017. Only 41,133 new units were launched between October-December 2019 as against 73,226 units in the corresponding period of the previous year. Before this trend started, the number of new units launched almost always exceeded the number of delivered units in India’s prime residential markets.

The nearly one-and-a-half-month-long lockdown would result in launches hitting record low levels in future, while severely impacting delivery deadlines.

According to Rohit Poddar, MD, Poddar Housing and Development, “The impact of the pandemic and the subsequent lockdown on realty would be severe, as the sector is already grappling with a liquidity crunch and the growing concern of rising unsold inventories across the country.”

Sharad Mittal, CEO and head, Motilal Oswal Real Estate Funds, adds, "Due to the lockdown announced on account of the COVID-19 outbreak, both, construction and sales activity, have come to a complete halt across the entire realty sector. On several sites, construction labourers have gone back to their home towns. Even after the lockdown, activity will recommence gradually, which will cause project delays of anywhere between four and six months at the least,”

The situation could worsen, as India reels under the impact of the pandemic, despite the lifting of travel restrictions since June 8, 2020.

You may like to read: COVID-19 Impact: What Should A Home Loan Borrower Do In Case Of Job Loss?