These past years the real estate industry of India has been grappling with project delays, reducing buyer confidence, issues of GST and RERA coming in through legislation adding to complexities and a hesitant investor. The covid crisis has only made it worse.
In the current scenario, the quantum of the impact on the industry will depend on how long the economy takes to get back on track.
In an exclusive webinar organised by The Blue Circle on ‘How is the Real Estate Industry Managing the Covid-19 Impact?, prominent leaders – Pavan Choudary, Author, CEO and Public Intellectual, G Raghavan, CEO, Bhartiya Urban Developers, Shajai Jacob, CEO, GCC (Middle East), Anarock Property Consultants, Gagan Randev, National Director, Capital Markets, Colliers International, Prashant Bindal, Chief Sales Officer, Lodha Group, Yash Gupta, Managing Partner, YGR, and Prabhu Ramachandran, Founder and CEO, Facilio, discuss the obstacles and opportunities and the way forward.
Headwinds and tailwinds
Segregating the real estate industry into four brackets – residential, retail, office and hospitality, Raghavan said each sub segment will be impacted differently.
“Those players will come out of it successfully who can look at their own firms to understand their unique strengths and constraints to redefine their operations in line with the emerging ecosystem.”
Residential real estate
Addressing the residential sub-segments Prashant explained, “Real estate is there for providing shelter, investment and esteem. The shelter-based segment has seen phenomenal growth in Bombay, especially under one crore bracket. Out of the 50,000 crore market, the shelter-based segment (under one crore) alone is worth 37,000 crore. The need for shelter is only going to increase, and more so for readymade homes.”
In the premium and luxury segment, where people buy for esteem and investment, Prashant says lately, people have realised that real estate is a more stable investment tool. “Even if fluctuations happen, you may not lose 30% of your investment in 10 days.”
Both he and Shajai agreed that big corporate real estate brands that offer quality products as well as help mitigate buyer’s financial risks, will be the ones preferred by consumers.
Real estate sales have often leaned towards under construction houses since these allow buyers to pay in phases. However, wary of frequent project delays, buyers have today become more inclined towards ready to move homes.
Zero GST on readymade homes plus comfortably low home loan rates have given further impetus to the affordable segment.
Because of current low sentiments and a feeling of insecurity the initial 3-6 months could be tough, said Gagan, since people would be focusing their energies on what happens to them at work as well as their cash flow situation. However, South market, which is very strong, will not be impacted at all. There could be some impact say in the markets of Mumbai, or NCR.
“There are certain things we have got habituated to over the last 45 and that is we have been able to reasonably work from home. In metros people, who would earlier travel long hours without thinking, may now prefer staying closer to where they work. This may lead to some shifting and investments in real estate.”
Office today is the most-talked about real estate space, primarily because of the shift to work for home due to covid.
While there is growing concern that Work From Home might take deep roots in India leading to lower office demand, Gagan is not too perturbed. He is of the opinion that, “Going forward there are going to be concerns of data privacy. You can build all the safeguards, but can you stop someone from taking the camera and taking photos of the screen. Those privacy issues will remain. So while some might cut down office space due to budgetary constraints, others will buy more space due to social distancing, and this will balance out the industry.”
Shajai, however cautioned that since 40% of the office space in India is being leased by American companies, and since the USA is in a depressionary stage, this might impact the industry.”
Presenting another point of view Raghavan said that several American companies are undergoing cost pressure, and are looking at reducing cost. Indian real estate industry should grab this opportunity and sell its commercial spaces to the US companies as a low cost office option.
Attractiveness of commercial office real estate
Inspite of exploding covid cases and recessed economy, Shajai is betting high on NRI investments. “In fact we are seeing NRI investors not only focusing on residential, but also commercial-grade real estate in the prime markets of the country – Bombay, Pune, Delhi-NCR. This will continue to get fueled given the fact that NRIs, in their own markets, are facing a tepid growth.”
According to Gagan, if there’s one sector that will be impacted in the short term and medium term, it is the co-working space.
“Companies may decide to move away from co-working spaces to their own offices so as to have better control over safety, hygiene, security aspects.”
The warehousing sector has witnessed impressive growth these last few years, and this will continue as per Gagan. The only difference will be that with quicker delivery being the norm, there will be more city-centric warehousing facilities.
There is also a huge boom going on in Tier 2 locations, with people aggressively looking at markets like Lucknow, Chandigarh, Coimbatore, and that trend is only going to continue.
“E-commerce is here to stay. In these days of social distancing, you are going to see a fall in retail footfalls, and more traffic on e-commerce platforms.”
Migrant labour going back home is not a new phenomenon, it happens every year, usually during festival time, Raghavan stated. What is abnormal is the timing and the circumstance of this exodus.
Yash would like the developers to try everything they can to navigate around this issue. This can include reduction in the amount of labour they use, or use automation, technology and other innovative methods to find solutions.They will also have to try innovative methods to keep the labour that they need.
While the issue of migrant labour going home continues to trouble the real estate industry, Raghavan sees a promise of them coming back.
“53 million livelihoods depend on this industry, so all of them can’t throw away their livelihood and not come back. This is an exaggerated concern, definitely a sociological issue and human issue, but let’s not miss the big picture.”
Role of technology
Prabhu noted that in the last few years, real estate companies have only been focusing on growth but operations and maintenance are being overlooked.
“There is a lot of wastage, leakages in that area. He is hopeful that the covid crisis might trigger efficiency in the whole real estate cycle, where both tenants and owners are going to focus on how we can make things efficient in terms of workforce, utilisation of energy, and water. This way operations and maintenance will adopt more technology, and will become more nimble and agile.”
It is also become important for the developers to digitise the entire sales process, now more than ever. Giving his own company’s example Shajai said their sales solution covers right from customer discovery to customer engagement to customer negotiation, and everything is being done digitally in partnership with the developer. The entire process is so well developed, the client does not feel the need to step out of his home.
Certainty in uncertainty
The key determinant in the new normal, according to Yash, will be the economic considerations, and not the health and pandemic considerations. What is certain is that economies globally will go through an uncertain and maybe a recessionary phase going forward, and that will define the new normal vs the pandemic. Developers or real estate participants who are more proactive, on flexibility, design, operations, will be the ones to succeed going forward.
He also predicts that if an effective vaccine is developed that will protect people both in the short and longer term, the old behaviour is likely to come back.
Behaviours that are altered by fear go back to normal, once fear goes away, he said, giving the example of how post 9/11 people said they will never get on a plane, and after 18 months, the aviation industry flourished with highest occupancy and highest usage.
On a positive note
Pavan concluded, “History has time and again shown that upheavals like Covid-19 do not just bring problems, they also bring opportunities. Infact, the history of the real estate, construction and infrastructure industry has always been shaped by disease.
“When a few centuries ago, it was believed that plague or disease was being caused by toxic vapours coming from the soil (the Dodgy Miasma theory) millions of square kilometers of pavements were lined and cemented with flagstones leading to this sector’s growth. The tracing of the Bubonic plague to the rat changed the thresholds of homes and their foundations. And Cholera brought the birth of sewage systems and zoning laws (mandating changes in locational preferences), and wipe-clean aesthetics of modernism were largely inspired from the tuberculosis era. Form has not only followed function but also infection.
“Socio-economic and anthropological lenses are needed to look at this sector deeply, to ascertain the nature of new demand and where it would lie. Buildings won’t be left to builders alone.”
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