Overview Of 2020 For The Real Estate Sector

Sharad Mittal, CEO & Head, Motilal Oswal Real Estate Over the last few years, the real estate sector has undergone several challenges due to a string of regulatory reforms and government policies which organized the sector, albeit with pain and disrupti

BY Realty Plus
Published - Tuesday, 15 Dec, 2020

Overview Of 2020 For The Real Estate Sector

Sharad Mittal, CEO & Head, Motilal Oswal Real Estate Over the last few years, the real estate sector has undergone several challenges due to a string of regulatory reforms and government policies which organized the sector, albeit with pain and disruption. Demonetization and RERA put a block on the informal lines of private capital that fueled the speculative growth in the sector till 2015/16. GST and RERA added transparency and accountability in the sector. These events created a trust deficit in the sector and started a phase of consolidation wherein the stronger organized players benefitted as weaker players started perishing. The IL&FS crisis in 2018 led to a massive liquidity crunch which brought several real estate developers on the brink of bankruptcy. Commercial real estate, on the other hand, was on a bull-run from 2014 to 2019. It attracted more than 70% of the external capital infused in the sector and achieved consistent growth in new supply and leasing during this period. Vacancy levels dropped significantly and leasing reach a record high of 40mn+ sq ft in 2019. The year 2020 has brought real estate to an inflection point. As the effects of the COVID pandemic unfolded across the world and India went into multiple phases of lockdowns, the impact on real estate was felt across the board. Cashflows were severely impacted with sales coming to a grinding halt and costs remaining the same. Issues related to labour meant that it took several more months to revive activity even after the lockdown was lifted. The months of March to July proved to be the final nail in the coffin for many developers who were already facing survival challenges for the last few years. As work-from-home (WFH) picked up and companies began exploring a long-term strategy around it, commercial real estate developers too started reviewing expansion plans thereby bringing a pause to the bull-run enjoyed by commercial RE over the last few years. This year, the Government announced several measures infuse to liquidity and provide incentives to boost the economy and the real estate sector. One of the key measure was reduction of repo rates which brought home loan rates to below 7%, for the first time in close to two decades. The effects of these measures were felt in the months starting July. As the economy paved its way back to normalcy, demand for real estate recovered much sooner than expected. Most cities achieved up to 70-80% of pre-COVID business levels with leading developers clocking a 100% recovery by October 2020. Commercial real estate portfolios have remained stable this year. While most developers are reviewing expansion plans, few have faced challenges in existing portfolios. Rental collections in grade A office portfolios have been stable on the back of IT/ITes, financial services and technology firms boosting strong results. A successful listing of India’s second REIT in July has shown the strong faith that investors repose in commercial RE.