While the adverse effects of the pandemic are already being felt across the world, varying opinions are emerging with regards to Covid-19’s impact on real estate, 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
Amid countries applying extreme measures to contain the Coronavirus outbreak, businesses have come to a grinding halt across the world, forcing monetary agencies to slash their growth forecast for the global economy. While the adverse effects of the pandemic are already being felt across the world, varying opinions are emerging on Covid-19’s impact on real estate, 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.
India, where the economic growth is already set to slow down to a record 11-year-low, the 21-day lockdown would further worsen 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 shows housing sales in India’s nine major cities declined by 30% in the period between October-December 2019 as the festive season failed to revive consumer sentiment, which took a severe beating because of large-scale delays in housing projects and increasing cases of builder insolvency.
“Several measures launched by the government in the past to revive realty growth seem to have made little impact. Considering it’s a major contributor to overall growth, which hit 4.5 percent in the July-September period, we expect further assistance from the government which would nudge buyers to invest in realty,” Elara Technologies Group CEO, Dhruv Agarwala said in a statement.
On the contrary, deal volumes in office space in India increased 27% year-on-year in 2019, to an all-time high of over 60 million square foot, showed a Knight Frank report. “The historic rise in the office transactions is a significant growth indicator for the office market as it represents the continued commitment of domestic and global corporations in the country’s growth potential despite the ongoing economic slowdown,” Knight Frank India CMD Shishir Baijal said in a statement.
However, any predictions 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 realty would 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 launched measures to revive demand though right now it doesn’t 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 centre 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 an 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 caused by the Real Estate Regulatory Authority (RERA), the goods and services tax (GST), demonetization and benami property law.
Covid-19: Impact on homebuyers in India
If low-interest rates (home loan interest rates are at 8% now) and high tax exemption (rebate against home loan interest payment is as high as Rs 3.50 lakh per annum) were going to make a change in the consumer behavior, the Coronavirus outbreak is likely to halt that shift, at least in the near to medium term.
As it is, site-visits by prospective property seekers are becoming out of question for the time being, postponing purchase decisions. “With the Coronavirus pandemic impacting all sectors of the economy, troubles have compounded for India’s realty sector which has been dealing with a ‘challenging scenario’ since the economic and policy reforms were introduced.
The slowdown since February-end is apparent; and while site visits are almost non-existent, the decision-making process is hugely delayed,” says Hiranandani.
The fact that businesses would scale down their workforce would also force many prospective buyers to wait for clarity on their job security before making a final decision on property purchase.
Even if the RBI were to announce further policy rate cuts, any positive effect of the change on buyer sentiment would be seen only in the medium to long term. The move, however, would come as a support for existing buyers, who might struggle to pay EMIs in the event of job loss.
Covid-19: Impact on builders in India
Slump-hit builders were pinning their hopes on government support to shed the increasing unsold stock even as an ongoing crisis in the country’s non-banking finance sector, a key source for housing sector funding, made borrowing extremely difficult, jeopardizing their plans to deliver projects within the promised timeline.
Developers were sitting on an unsold stock worth approximately Rs 6.1 lakh crore as of January 2020, show PropTiger.com. Near halt on construction activity amid a lockdown in India to contain the virus and delay in supply of manufacturing material and equipment from China, will further push delivery timelines of ongoing projects, consequently increasing the overall cost for developers. Through furious efforts, China, the country where the virus originated, has been able to bring the pandemic to heel, with workers joining offices. However, as the situation in India worsens, builders here will be forced to postpone orders.
The government is expected to launch support measures for the developer community in order to offset the losses they will suffer on account of the Coronavirus spread, including allowing the force majeure clause to skip penalties over project delays. EMI holidays for developers during the crucial period could be another measure to offset losses.
“The pandemic menace has hit at a particularly sensitive time. Across realty companies, this is the time when statutory payouts and streamlining of balance sheets happen. In this challenging time, we have asked the government for some economic interventions like rescheduling loan repayments, a one-time rollover for debt restructuring and deep interest rate cut,” Hiranandani added.