While the adverse effects of the pandemic are already being felt across the world, varying opinions are emerging with respect to COVID-19’s impact on the real estate sector, a health emergency that has force launched the biggest ever work-from-home experiment globally, putting a question mark on the relevance of workspaces in a post-Coronavirus world
Much has changed since the Coronavirus hit the world in December 2019. Amid countries applying extreme measures to contain the pandemic, businesses came to a grinding halt across the world, forcing monetary agencies to slash growth forecasts for the global economy, India included.
S&P Global Ratings, on September 14, 2020, cut its FY21 growth forecast for India to -9% against -5% estimated earlier, as the number of infections in the country touch record levels. “One factor holding back private economic activity is the continued escalation of the COVID-19,” S&P Global Ratings Asia-Pacific economist, Vishrut Rana said. As of September 15, 2020, India reported a total of 49,30,237 infections. After the gross domestic product (GDP) numbers for the first quarter of FY21 showed a decline of 23.9% over the same quarter last fiscal earlier, global rating agencies Moody’s and Fitch also projected the Indian economy to contract by 11.5% and 10.5%, respectively, in the current fiscal.
While the adverse effects of the pandemic are already being felt across the world, varying opinions are emerging on COVID-19’s impact on the real estate sector, a health emergency that force-launched the biggest ever work-from-home experiment globally, putting a question mark on the relevance of workspaces in a post-Coronavirus world.
In India, where the economic contraction indicates towards a delayed start of the long-arduous road to recovery, a prolonged lockdown — which started from March 25, 2020, and was eventually extended till June 7, 2020, amid a dramatic rise in the number of infections — worsened the situation in Asia’s third-largest economy.
As is evident, research agencies are predicting a near-term halt in the growth of real estate in India. PropTiger.com data show housing sales in India’s nine major cities declined by 79% in the period between April-June 2020.
“While the Chinese economy has been reeling under the impact of the Coronavirus contagion since December 2019, the situation started to get worrisome in India only in March 2020. The lockdown, which virtually brought to a standstill most economic activity in the country, has hurt all sectors, including real estate. The adverse impact of the Coronavirus is visible on housing sales in the last quarter of the last fiscal because March is usually one of the biggest months for sales,” says Dhruv Agarwala, Group CEO, Housing.com, Makaan.com, and PropTiger.com.
Although deal volumes in office space in India increased 27% year-on-year in 2019, to an all-time high of over 60 million sq ft, the growth momentum in India’s commercial segment is also likely to get derailed due to the virus attack.
Any positive predictions about its growth made before the sudden outbreak of the global calamity stand retracted, as the government gets busy devising plans to stop businesses in general and the economy in particular from sinking deeper into a slump, amid impending fears of the rupee declining to a low of Rs 78 against the US dollar.
While the real extent of the damage is hard to grasp in a scenario where every day is making a great difference, one thing is for certain – India’s real estate sector will suffer short-term shocks on account of the contagion.
COVID-19 impact on Indian housing market
The Coronavirus spread has further delayed a recovery that might have seemed possible, because of various government measures to revive demand, even though, right now, it does not seem like prices will go down immediately.
Niranjan Hiranandani, national president, NAREDCO, states that “Salvaging Indian realty, the second-largest employment generator is critical, not only from the GDP growth perspective but also for employment generation, since the sector has a multiplier effect on 250-plus allied industries.”
The center in the recent past had announced higher tax breaks and lower interest rates on home loans to make purchases more lucrative, apart from setting up a Rs 25,000-crore stress fund for stuck projects.
The demand slowdown in the residential segment has already curtailed housing sales, project launches, and price growth in India’s residential realty sector, which has been reeling under the pressure caused by mega regulatory changes, such as the Real Estate Regulatory Authority (RERA), the Goods and Services Tax (GST), demonetization and the Benami property law.