Globally, no industry has remained unscathed from the onslaught of the COVID-19 outbreak. India is no exception, considering that the country was placed in what will be known in history as the world’s largest lockdown.
However, as with every serious situation, there is light at the end of the tunnel. With a slew of measures from the Reserve Bank of India (RBI), an increase in online sales of homes to NRIs, the stabilising of property prices across key markets and the robust measures that real estate companies have put in place for their labour force and employees, the sector is poised to bounce back as soon as two quarters.
An overview of impact of COVID-19 on the realty sector
The real estate sector has also faced the impact of the lockdown – with construction being halted, customers defaulting on payments for under-construction projects, reduction in residential unit sales and more, being just the tip of the iceberg. Site walk-ins reduced by 30 percent to 50 percent. With the quarter closing March, real estate sentiment has been exceptionally low, in terms of launches, sales and even pricing.
Most developers postponed launches of their residential projects, except soft launches. Even with the partial lifting of the lockdown, the slowdown is predicted to continue since most real-estate decision-making has been pushed to the backburner till there is better clarity on the true impact across various other sectors, and customer buying sentiment.
The immediate impact will be seen three specific segments of residential real estate:
- Delayed project handovers:While the government has said that construction activities can resume, with the caveat of labourers having to be on site, some activity will resume. However, a delay of around 8 months is inevitable. Besides the lack of labourers (considering several have gone, or will want to go home), there is also a disruptive supply chain of materials that will need to stabilise.
- Launches Deferred: Most launches take place in the festive season but with the current state of affairs, several are going to be deferred, changing the dynamics of the demand and supply situation.
- Increased Construction Cost:Considering the disruption in imports of materials like steel and iron, the cost of construction may rise, but builders will not want to pass this to the consumer in the current market scenario.
Savills India, a realty consulting firm, believes that there will be surge in businesses once the pandemic slows down. The upcoming two quarters may be slow, but there is definitely an uptick to be seen post recovery.
It is expected that the residential market will stabilise in the second half of the year. Strong pent-up demand combined with rationalised pricing and able support from the government will be the key to recovery for the residential sector. This is likely to be further supported by the sharp declining trend with a high degree of volatility prevailing in the stock market.
Today, real estate is the second largest contributor of employment next only to agriculture. Any ripple impacts 200 ancillary industry which collectively accounts for almost 7 per cent of country’s GDP. For a revival to take place it is necessary that measures be undertaken from the industry perspective, hand-in-hand with relief packages and monetary infusions from the government to safeguard the sector that contributes significantly to the GDP.
How is the realty sector coping with the lockdown?
Like all other industries, the real estate sector too has quickly found ways to ensure that it does what it can in the current scenario. Here is a look at some of those initiatives:
Keeping the Conversation Going: While personal interactions are not currently underway, the realty segment is turning to digital channels such as AR/VR to connect with client and keep the conversation going. Creating a visual depiction of projects to engage new enquiries and handling queries with online chatbots has ensured the potential customer interacts with a brand.
Safeguarding Employees: Construction activities may be resumed soon in non-red-zone areas with several caveats. Up until this time, real estate companies have ensured support and protection to their employees in terms of food and shelter security. For those working on the corporate side of things, many have put basic protections in place for their employees and customers. Companies have activated no-travel and work-from-home policies for some workers and physical-distancing-at-work measures for others.
The Role of the Government
The real estate industry needs a good deal of external help to boost the sector and that has been happening at multiple levels.
Liquidity Boost: The Reserve Bank of India (RBI) recently announced a slew of measures to accelerate the economy and facilitate bank credit flows. For the realty segment, the allotment of Rs 10,000 crore to National Housing Bank is a commendable move to enhance liquidity, giving HFCs capital.
Additionally the, RBI has reduced the reverse repo rates by 25 bps to stand at 3.75 percent. This will encourage banks to lend more. The RBI has also extended the date of commencement of commercial operations (DCCO) of project loans for commercial real estate projects for delay due to unforeseen reasons. This will bring much-needed relief to cash-strapped developers and will help maintain cash flows.
Monetary Relief Measures: The industry has collectively impressed on the state governments the need to take necessary steps to utilise the cumulative Rs 31,000 crore cess funds collected for the welfare of building and construction labourers who are severely impacted by the economic disruption.
This, in addition to the economic package announced by the Central government is expected to benefit 3.5 crore registered construction workers. Efforts are also underway to help the several non-registered workers as well. In addition, invoking ‘force majeure’ with respect to COVID-19 under Section 6 of RERA will provide developers extension of project completion timelines and exemption from penal charges in case of any default.
At the state level, governments are ensuring buyers and their needs are looked into with an extension of timelines for payment of property tax. Local RERA authorities will be working closely with the developers and will also engage in detailed talks for a way forward once the lockdown is lifted.
A few additional measure the government may consider could include a possible increase in deduction of interest on home loans u/s 24; removal of restrictions on setting off loss from house property against other heads of income at Rs 2 lakh; Separate provision for deduction of ‘principal repayment’ on home loans; Reduction in holding period of REITs for long-term capital gains and evision of circle rates to reflect market trends.
Outlook for the Real Estate Industry
The road is ahead is a long one for the real estate industry but there are reasons to see a silver lining ahead. There has been an increase in online home sales, despite the lockdown. This has seen top developers across the country be able to resume at least 15-20 percent of their business. This is a good sign for the industry.
Reports indicate that the average property price in the top 7 cities has remained stable over the last few years at Rs 5,580 per sq. ft. by 2019-end. It was expected that the pandemic would reset these prices but currently these will remain stagnant and developers will have to plan wisely. Developers looking for cash and saddled with a large inventory may reduce prices in the short run.
This will be of added advantage to the NRI investor. The rupee’s depreciation against US dollar has made real estate investment a lucrative prospect for the NRI investor. Most surveys indicate that real estate is still considered a top investment asset by Indians abroad. With the currently volatility of the stock markets (which rank second in terms of an investment asset among the NRIs), several are turning to real estate.
The time is right for developers to re-strategise going forward. To re-design by ensuring space utilisation, optimum as well as price rationalisation to be able to cater effectively to this community. A crisis like this will see an increase in the demand for asset class like senior living. With essential services being hit senior living projects ensure the continuity of services. Ready-to-move in products in luxury gated community where there is no disruption in services will have the sustained interest of consumers.
(Source: Moneycontrol)
