With the global impact of Covid-19 on multiple sectors, Indian realty sector is by no means an exception. However, the blow to this sector is much higher than others. The industry has been grappling with project delays, regulatory changes and low sales for the last few years, and this pandemic has only made it worse.
While the government has eased restrictions for this sector, several experts feel the situation might worsen. Massive disruptions are predicted in the construction material supply, leading to disturbances and delay in construction activity.
Speaking of sales in the last few years, 2018 saw an improvement with RERA coming into force. But the euphoria was short-lived, and with the liquidity crisis and a weakened economy in 2019, there was nothing positive to write about.
In the current scenario, the quantum of the impact on the real estate industry depends on how long the economy takes to get back on track.
Delay in projects
Home buyers who are expecting the possession of their properties soon must be prepared to wait longer. This means they will continue to pay rent as well as EMIs at least for the next few months, as project deliveries are likely to be deferred.
ABA Corp, one of the leading real developers in Delhi-NCR foresees a delay of at least eight to nine months due to disruption of supply, owing to the Covid-19 outbreak.
While the lockdown brought the sector to a standstill, it isn’t that construction activities will immediately resume once the restrictions are lifted. Most labourers are in their hometowns, and it will take some time for the industry to restore normalcy.
Further, the summer season and Diwali festival are the best time to announce new launches. This time around, the situation seems bleak, and according to predictions, new launches are likely to register an annual decline to the tune of 25-30 percent.
It isn’t just the residential space that’s taken a hit, commercial space is suffering too. According to a press release by ICRA on the impact of coronavirus, the retail commercial space comprising mall operators will be impacted in a major way, as a result of closure during lockdown.
Repercussions on office spaces are likely to be marginal, but co-working spaces will be impacted.
Rental expenses form a comparatively smaller proportion of the total cost structure of office space tenants. Whereas in the case of co-working spaces, tenants are mostly startups or small businesses. These tenants are more likely to negotiate on the rentals, rather than a normal office space tenants.
Most experts believe that prices will largely remain stagnant though the building costs may rise.
Nirajan Hiranandani, national president, National Real Estate Development Council (Naredco), a real estate developers’ body, in an article in Mint, predicted that there shouldn’t be any major changes in the primary market, even though the market scenario has been challenging for a long time. He feels that the discounts have already been factored in the current price, so there won’t be any further reduction post-Covid.
The cost of raw materials will go up but developers will be unable to pass it on to buyers.
India imports steel and iron products, as well as technical construction equipment from China. According to a report by ICICI securities, India imports 11 percent of its iron and steel from China. Also, India’s biggest import source country for iron and steel, South Korea, imports 20 percent of its requirement from China.
With production taking a beating in China, the cost of materials may rise, and this means reduced profit margins for Indian real estate developers .
Affordable housing segment tested
Nearly 40% of new launches added across the top 7 cities of India during the past few years are under the ambit of the affordable housing segment.. The government’s strong push on the ‘Housing for All’ mission and extension of several sops to the home buyer and developer of this segment, led to a wave of affordable housing developments.
Amidst the current outbreak, the most affected segment of the working population is the target group for affordable housing developments. These home buyers with limited income and lack of work from home facilities may have to face loss of pay or even jobs, and may reconsider their purchase decisions.
With affordable housing units accounting for around 36% of the overall unsold inventory across the top 7 cities as of Q1 2020, this segment was already being tested and the current pandemic outbreak has further worsened the situation.
Post Coronavirus prospects
A study by Savills India, a property consulting ﬁrm, expects global businesses to bounce back, once the pandemic abates. India will witness a slowdown in the current and coming quarter, however, the real estate sector is likely to benefit post recovery of economy.
In the mid-term, many investors and buyers might move towards real estate, as it is believed to be a safe tool to invest. As the stock markets have taken a hit in India, an asset like real estate becomes a natural choice for many buyers and investors to park their capital, neutralize any possible inflationary pressure, and mitigate market-induced risks (Mint).