Most of the businesses have been impacted by the coronavirus pandemic. After the outbreak, all the non-essential businesses were ordered to shut down in India and imposing restrictions on the rest. This nation-wide lockdown due to the novel coronavirus outbreak has also affected the real estate sector, leaving us with a major question of what will be the possible outcome and how long the economy will take to get back on track.
The widespread COVID-19 pandemic led to a devastating effect on the migrant workers who had to return their home towns. Moreover, after the nationwide lockdown, the real estate sector faced financial instability which resulted in daily wage workers not being paid. This major turn of events has also led to the shutting down of raw materials and cement factories, therefore, real estate development cannot take place speedily.
Keeping in mind all the consequences on the global economy and the Indian real estate sector, here is the effect on real estate after COVID-19.
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1. Trade Loss: In the Indian real estate sector, a crucial investment from China, Hong Kong, and Singapore has come in 2019. Even if the Chinese and Indian economies would not be a part of the upcoming recession, India would face the risk of immediate trade loss. It will be mainly due to the residential real estate sector because of its slow movement and over-supply.
If the pandemic situation will have a longer impact on the economic supply chains, then residential real estate investments might deviate from the residential real estate sector but it will not impact commercial real estate investment because of limited supply. Investors will be only willing to invest in more stable products such as commercial real estate.
2. Residential real estate: With a lack of cash flows, liquidity, and income, Indian households, or individuals who were planning to invest in the residential real estate, might have to recalculate their investments. The residential real estate market has always been a slower and struggling market due to the past structural changes, and policy reforms. Due to the COVID-19 pandemic, there will be a reduction in the demand and supply of residential real estate. Residential sales dived by 42% in the first quarter of 2020. Moreover, demand for commercial real estate will witness a substantial drop. As a result, the entire real estate sector sales are bound to fall.
3. Construction: Migrant workers from many states formed a major workforce in construction. Most of them were daily wage workers in major cities and have left for their home towns in the rural regions. There are huge chances that the construction and real estate businesses will face a labor shortage as the construction work has discontinued. NAREDCO, National Association of Real Estate Developers Council, is an industry body, has urged the government to allow the continuation of construction work at construction sites during the lockdown with safety measures. This request is supposed to minimize losses and complete the necessary projects before the monsoon.
4. Delayed Projects: Over several months can be taken by the well-funded projects to complete the deadlines. Some of the projects can also be delayed by two years according to a report published by Anarock Group. There are a total of 15.62 lakh homes that are under construction, out of which 4.66 lakh units were supposed to be delivered in 2020 which are affected by the novel coronavirus outbreak. About 57% of these are in the Mumbai Metropolitan Region and National Capital Region, as per the research of the Anarock group. Most of the developers and builders schedule the launch of their projects during major Indian festivals like Akshaya Tritiya, Gudi Padwa, and Navratri that fall in March and April. With the continuously growing lockdown duration, most of the plans are deferred.
5. Pricing: According to most developers and experts, the costs of the real estate will go up, however, the pricing will remain stable. As no transactions are taking place, there will be no changes in the prices and it will continue to be on the same level. The real estate market scenario is supposed to be challenging but possible concessions and discounts will be given for the current pricing to avoid further rate reduction.
6. Cost of raw materials: Increase in the cost of raw materials has been anticipated by the experts, however, they won’t be able to pass it on to the buyers, especially in the upcoming market situation. This explains the fact of stable pricing of the real estate sector. India is a giant importer from China of iron and steel products. With slowed production in China, The cost of these raw materials will be increased that will eventually lead to a reduction in the profit margins of the real estate sector.
7. Recovery: Due to an over-supply residential real estate market may take time to perform well. It is very much possible that the commercial real estate market may perform well. Because of its limited supply and more demand.
As per a study conducted by a property consulting firm, Savills India, the global businesses are expected to see a sudden upward flow after the pandemic is over. Indian businesses will face a slowdown and stands to benefit post-recovery. People will first wait for the things to settle down and then will make an investment decision, however, the pricing of the residential real estates are unlikely to change early.
The Indian real estate industry will surely face a genuine crisis and therefore, an immediate relief policy sought from the Ministry of Housing and Urban Affairs and was released by the CREDAI, Confederation of Real Estate Developers Association of India.
In a press release by ICRA, the retail commercial space will be highly impacted by the coronavirus and may suffer for a while, especially the mall operators due to the closure across the nation. There are fair chances that many developers and builders will low liquidity will offer the best deals to the buyers due to the high unsold stock and reduced demand. However, the situation was pretty much the same before the pandemic and is likely to be increased after it dies. The commercial and residential real estate market will have major legislations and certain policy decisions due to the heavy impact of COVID-19. The real estate sector in India contributes 13% to the GDP and is 2nd largest nation’s employer. It will have a direct effect on 250 other industries after the pandemic is over. All the developers, builders, and brokers will be adversely affected due to lesser profit margins, shortage of labors and raw materials, and delays. Therefore, with the Government concessions and regulations, developers may be able to fulfill their commitments.
Overall there are two main segments of real estate investment first one is residential and 2nd is commercial, residential real estate may take time to improve due to its over-supply, but the commercial real estate may perform well very quickly due to its very limited supply.
The demand can be raise for ready/occupied rented commercial properties, and good assured return & pre-lease guarantee under construction commercial projects for regular rental income, due to the downfall of most of the businesses in Covid19 lockdown period.