Understanding Covid Impact On Residential Real Estate

BY Realty Plus

To Categorize The ‘Shape’ Of Disruption, Residential Real Estate Will Witness A U-Shaped Recovery Comprising Longer Period Of Flat Activity Followed By A Fast Recovery.

Text: Leandra Monteiro   The Construction Industry, contributing 8-9% of India’s GDP has and will continue to be severely affected by the impact of the pandemic. The magnitude of impact will depend from region to region, severity of the lockdown in each region and how long the economy will take to get back on track. For the Indian real estate sector, the crisis has been severe as it was already struggling due to weak economic scenario for the last few years. In terms of pricing, not much reductions are expected in the short-medium term. To address the immediate cash flows, some operation efficiency measures, balance sheet cleaning up and divestments/acquisitions will be seen across the board. From home buyer’s perspective, Covid crisis seem to have reinforced home buying as an important step in financial & mental security in uncertain times. Secondly, there will be greater inclination of buying from established developers who have the financial means and have demonstrated resilience during this period. Jaxay Shah, National Chairman Credai presented his views, “Realty Sector remains the second largest employer after agriculture and halt in construction activities will have a long term impetus on the realty sector. With easing of lockdown, the government allowing of construction activity and supply chain in a staggered manner, as we have already being taking care of the construction workers and construction, will help the sector move towards completion of projects.” Real Estate squarely falls in the most impacted bucket, with severe impact in the short term and full recovery taking 12-24 months. The distress may continue into Q3, affected by possible shortages in labour availability and materials. Most forecasts estimate a 1,00,000 cr quantum of stressed assets requiring urgent aid.   How Can The Government Help? For the real estate sector, the government has already taken few measures such as using the Building and Other Construction Workers Welfare Cess Fund (BOCW) to transfer cash directly to Construction workers. Also, the Reserve Bank of India’s move to allow a moratorium of 3 months on loan repayments and recent reduction in repo rate by 75 basis points is expected to help both homebuyers and realty developers manage their liquidity crunch. While, these initiatives by the government and the central bank have eased the burden of the sector, there are certain specific measure that industry players are looking forward for faster recovery. Nayan Shah, CEO, Mayfair Housing Pvt. Ltd elaborating on what more can be done by the government stated, “Speedy implementation of the real estate growth  stress fund is expected from the central government, some immediate short foul measures should be introduced. Revoke the recent increase made in taxes for higherincome groups, reduce corporate taxes for all the firms to 25 percent and remove the exception. Reduce the rate of GST and bring in more clarity. State government needs to reduce the stamp duty, development charges, and fungible premiums.”   Ashish Sarin, Founder and CEO, AlphaCorp adds further, “Unless the Government provides adequate financial stimulus and finds creative means to tide over the devastating economic impact, it may take a while before the real estate sector can recover. Government initiatives like reduction in RBI Repo rate to provide maximum benefit to the endusers will to some extent help in reviving the economy but major sectoral initiatives may be the need of the hour. That will improve liquidity conditions, cheer growth and safeguard financial stability.”   New Normalcy Post Lock Down The home ministry has allowed construction activity after April 20, bringing relief to the labour-intensive real estate sector. As per the guideline number 16 of government circular, “construction activities will be allowed to operate—which includes road, irrigation projects and buildings of all kind, in rural areas. This is defined as “areas outside the municipal corporation and municipalities”. The notification also states that construction in all sites, within the limits of municipal areas, can begin—provided workers are available on sites, and no workers are expected to be brought in from outside. Movement of trucks (inter- and intra-state) is allowed depending on the local administration’s approval. According to industry players, the circular is a positive step but the outcome will depend on the local administration giving clearances on time and availability of labour in the municipal areas. The sector also demands that approvals for labour licenses and GST compliances should be granted electronically by the authorities to expedite the process. Furthermore, soon rains will set in many parts of the country which will result in a shortage of building raw material. The government can take a relook at these guidelines and ensure an effective solution.   Post Covid Outlook We must realize that the country is facing a war like situation due to COVID 19, which has severely impacted the real estate sector. Both buyers and developers are facing a hard time, in terms of housing sales and purchase. The short-term consequence is that the buyers who were ready to purchase or invest have decided to defer their decision until the economic scenario gains clarity. In such times of uncertainties, the priorities change and the foremost priority at this time is to save for the difficult times that are being anticipated by the market. It is expected that the sale will come down to the levels of 30 to 40% from the pre-COVID times.” expressed “While the sales have not come to a complete standstill, it’s just that, due to the prevailing uncertainty, the number of transactions have dropped and people are taking longer than normal to make up their mind. As for the longer impact, it would be difficult to ascertain the exact impact, at this juncture. We are hoping that the situation will stabilise soon, with the government taking necessary measures. We will be able to assess the overall impact more effectively, in the days to come, and we will adapt according to the changing environment” shared Ashish Puravankara, Managing Director, Puravankara Group. In conclusion, an extended period of disruption will lead to long term impacts such as reduced cash flows, high invent overhang and project execution issues. However, according to experts the recovery will be relatively faster as compared to other industries.   Residential Market Update Delhi NCR: Sales are likely to remain sluggish in the short to medium term due to the prevailing uncertainty when income preservation will be a key priority for buyers, thereby posing significant challenges for operating cash flows, particularly for smaller developers. Mumbai: The uncertainty from the COVID-19 outbreak and the shutdown is likely to delay approvals and new project launches. We expect developers would focus on reducing unsold inventory and focus on projects that are already under construction over the next 3-6 months. Bengaluru: Capital values remained largely stable across categories and sub-markets with unsold inventory levels and the slowly improving sales momentum not offering any support to prices. This was further exacerbated by the outbreak of the pandemic in the city. Hyderabad: Given the broader economic impact and uncertainty prevailing currently with the COVID-19 outbreak is expected to dampen market sentiments at least for the next 2-3 quarters. Weak affordability and subdued demand conditions are likely to prevail across the city. Pune: Due to the Covid-19 outbreak, we expect residential sales to be adversely impacted in the nearterm, as buyers may choose to stay away from site visits and postpone their purchase decisions. We expect buyer sentiment to remain weak until the lockdown is lifted or partially eased, construction activity resumes and stalled projects gradually move towards completion. Chennai: Developers expect a significant slowdown in new launches with even the under-construction projects getting delayed due to shortage of manpower and non-availability of construction materials in the current COVID-19 situation and the lockdown period. Kolkata: Property capital values along select corridors were expected to witness some appreciation in the short to medium term with enhanced metro connectivity, however such possibilities of price movement now seem difficult with the COVID-19 impact on sales and liquidity standing of developers will exert pressure on prices. Ahmedabad: Prices remained stable in the mid-segment and high-end segment during the quarter. Rising interest in the affordable segment has resulted in gains in previous quarters but no change was seen in Q1.

Tags : Latest News Jaxay Shah Nayan Shah CEO home buyer National Chairman CREDAI Covid Impact On Residential Real Estate Government Help Construction Workers Welfare Cess Fund Mayfair Housing Pvt. Ltd Ashish Sarin Founder and CEO AlphaCorp Lock Down