Knit Frank Survey Opines That Corona Virus Impact Has Led The Real Estate Sentiment To A Historic Low

With the COVID-19 crisis playing havoc on the economy and real estate sector, the current sentiment of the real estate stakeholders has dropped to an all-time low of 31 in the first quarter (January – March) 2020.

The ‘future sentiment score’ outlining the market expectations has also dipped well into the pessimistic zone at a score of 36, the 24^th Knight Frank – FICCI – NAREDCO Real Estate Sentiment Index Q1 2020 Survey has said.

Looming uncertainty due to the pandemic has adversely impacted stakeholder sentiments for the coming six months as well. The lockdown will translate into a vicious sequence of stalled construction, delays in project deliveries, delays in loan repayments and debt servicing to banks and an overall slump in demand due to uncertainties in employment and salary cuts, it said.

A score of over 50 signifies ‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score of below 50 shows ‘Pessimism’.

As far as the current sentiment score is concerned, it has nosedived to the lowest levels in Q1 2020 in the wake of the ongoing COVID-19 outbreak. The sentiment score had revived to a score of 59 in Q4 2019.

The real estate sector had started looking up in the Q4 2019 after being in the pessimistic zone (below 50 mark) for two consecutive quarters. The revival was however short-lived, as the current sentiment score has dropped to 31 in Q1 2020.

The mood of the stakeholders as regards the overall economy and the real estate sector had been in the pessimistic zone in the second and third quarter of 2019 due to credit squeeze and overall economic slowdown. With the slew of measures announced by the government to revive the sector, the last quarter of 2019 infused confidence in the real estate market, the survey said.

The creation of a stressed asset fund (AIF) of Rs 25,000 crore to provide last mile funding to stalled affordable housing projects was a welcome step in this direction. However, the COVID-19 outbreak has marred the stakeholder’s sentiments.

The future sentiment score has sharply fallen to 36 in Q1 2020 after having bounced back in Q4 2019. Looming uncertainty due to the pandemic has adversely impacted the stakeholder sentiments for the coming six months as well, the survey said.

The lockdown will translate into a vicious sequence of stalled construction, delays in project deliveries, delays in loan repayments and debt servicing to banks and an overall slump in demand due to uncertainties in employment and salary cuts. All these factors have marred the future sentiment score of stakeholders, it noted.

More than 60 percent of the stakeholders have opined that the current COVID-19 situation will adversely impact residential new launches (65%), sales (65%) and prices (64%) in the next six months.

The residential sector which already had concerns of weak demand will find it difficult to launch new projects and complete the ongoing ones due to construction halts and labour shortage.

The slew of measures announced by the government like AIF for last-mile funding of affordable housing, rationalisation of GST rates, liquidity support to HFCs and NBFCs were desirable steps to revive the sector. However, in the current situation, further stimulus measures will be required to revive the sentiments and invigorate demand, it said.

As far as commercial office space take-up is concerned, 42 percent of the respondents believe that the next six months will be one of the worst phases in terms of new supply additions across the major office markets in the country. Nearly 53 percent of the stakeholders opined that leasing activity will remain well below par in the next six months, the survey said.

Stakeholders’ outlook with regard to future rental appreciation also dipped in Q1 2020 with almost half of the stakeholders expecting rents to either remain stagnant or slide under the current uncertain economic scenario.

“This crisis has retracted the end-user confidence to its lowest levels ever, which will push any kind of real estate purchase decisions to the distant future. The already ailing real estate sector has been crippled with this pandemic, making it imperative for government support to bring it back on track,” said Shishir Baijal, chairman and managing director of Knight Frank India.

The stakeholders’ sentiments with regard to the economic scenario for the next six months paint a dismal picture with 76 percent of the stakeholders being of the opinion that the overall economy is headed for a downward spiral. As many as 70 percent of the stakeholders believe that the flow of funds to the real estate sector might get worse or remain at the current levels in the coming six months, the survey said.

“There will be a slowdown across the industry post COVID-19 crisis. The industry is facing an acute working capital crisis which is essential to restart the business and keep it moving. We have all pinned our hopes on government intervention to salvage the loss created by the crisis with its big fat fiscal stimulus to get the growth trajectory back on track,” said Niranjan Hiranandani, national president, NAREDCO and founder and MD, Hiranandani Group.

(Source: Moneycontrol)