Impact of Coronavirus on Indian Real Estate

The whole globe has seen and experienced the adverse effect of coronavirus. If we talk about India, every industry has to face severe setbacks due to this pandemic especially the real estate industry.

Ever since the Coronavirus impacted humanity in December 2019, much has changed. Amid countries all over the world applying drastic steps to mitigate the pandemic, a lot of companies have come to a worldwide grinding halt, prompting monetary agencies, including India, to cut growth projections for the world economy.

S&P Global Ratings, on September 14, 2020, cut its FY21 growth forecast for India to -9 percent against -5 percent estimated earlier, as the number of patients in the country reaches record levels.

India registered a total of 6,685,082 cases as of October 6, 2020. After the gross domestic product ( GDP) estimates for the first quarter of FY21 showed a decrease of 23.9 percent over the same quarter last fiscal earlier, in the current fiscal year, global rating agencies Moody’s and Fitch have predicted that the Indian economy will contract 11.5 percent and 10.5 percent respectively.

In the last quarter of the last fiscal year, the adverse effect of the Coronavirus on housing sales is visible because March is normally one of the largest sales months. While we may well be on the road to a more sustainable recovery, with many macro-economic indicators showing a positive trend in September, and the upcoming festival season will be crucial in evaluating the sector’s steady growth over the next 12 months.

The spread of the Coronavirus has further disrupted a rebound that may have seemed feasible due to numerous government initiatives to revive demand, although it does not seem that prices are going to drop immediately right now.

COVID-19 impact on the Indian housing market

NAREDCO ‘s national president, Niranjan Hiranandani, notes that “Saving Indian real estate, the second-largest generator of jobs, is important, not only from the perspective of GDP growth but also for job generation, as the sector has a multiplier effect on more than 250 allied industries.”

“In the event of a longer outbreak, however, the effects on overall economic activity is likely to be wider and more persistent, resulting in a more severe impact on developer cash flows and project execution capabilities, giving rise to broader credit-negative implications,” according to the rating agency ICRA.

The Rs 3.74 lakh crore liquidity injected (by the RBI) along with the moratorium on all financial institutions’ term loans would mitigate short-term liquidity issues and assist developers as well as home buyers. The government has also said that the property developers could get their project deadlines extended by 6 months through the RERA citing the force majeure clause, which is a great relief for developers and buyers to help them mitigate the difficulties they face at present, anticipating delays in project completion and extending support to the builder community.

COVID-19 impact on homebuyers in India

While several rate cuts were announced by the RBI, taking the repo rate down to 4%, any positive impact of the change on buyer sentiment will only be seen in the medium to long term. However, the move will come as a big boost for current customers, who could struggle to pay EMIs because of the lockdown or in the event of job losses in the short-term or medium-term.

The pandemic, however, has also made buyers understand the importance of home ownership, thereby giving residential real estate a boost in sales sentiment.

53 percent of respondents said in a survey that they have put their plans to buy a property on hold for just six months and plan to return to the market after that. To operate from home, approximately 33 percent of respondents in the survey have said they would have to upgrade their homes. In a renters’ survey, 47 percent of respondents said they would like to invest in real estate if it were priced correctly.

COVID-19 impact on office space in India

While individuals are increasingly returning to work in sectors where working from home is not an option, as of now, remote work continues to be the keyway for businesses to operate.

According to international property brokerage JLL, in the quarter of July to September 2020, net office space leasing dropped by 50 percent, to 5.4 million sq ft across seven major cities as corporates and co-working players proceeded to delay their expansion plans amid the pandemic.

In seven cities, including Delhi-NCR, Mumbai, Kolkata, Chennai, Pune, Hyderabad, and Bengaluru, the net absorption of office space stood at 10.9 million sq ft in the year-ago period. Net office space leasing decreased by 47 percent to 17.3 million sq ft from 32.7 million sq ft in the same time frame in 2019 during the January-September period of 2020.

Experts, however, expect this segment’s pre-COVID-19 growth momentum to be recovered eventually.

In reality, according to a study by global property brokerage Knight Frank, the office sector accounted for 81 percent of the total private equity investment of USD 2.31 billion across 11 deals in the first nine months of 2020, followed by 10 percent warehousing and 9 percent residential.

COVID-19 impact on builders in India

In the midst of a lockdown in India to contain the virus and a pause in the supply of manufacturing materials and equipment from China, the near-halting of construction activities would further push the delivery timelines of ongoing projects, thus raising developers’ total costs. China, the nation where the virus emerged, has been able to rein-in the pandemic through furious efforts, with staff returning to workplaces. However, builders here will be forced to delay orders amid friction between the two neighborhoods.

Several initiatives announced by the government during the critical time in its Coronavirus-specific stimulus package and the EMI holiday for developers are some moves that could give the building community some relief.

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