The worldwide effects of the Pandemic

Given the current scenario of pandemic across the world, Vaibhav Dhingra - Executive Director - AVEC Group shares his thoughts with respect to the impact on real estate specifically.  

1. The short & longer impact of the COVID crisis on Indian Property Market?

The corona virus has affected scores of people worldwide disrupting industries across all sectors, Trade cycles, and supply chains creating havoc on Capital Markets spiralling recession fears. The spread is expected to dampen the Real Estate Investment in short term due to halt in all commercial & construction activities coupled with travel bans and hit on all sectors. The impact & speed of Real Estate revival of Covid 19 will depend upon period of Pandemic and the pace at which functionality returns to the market coupled with investor confidence Short Term Impact:

• The depth and breadth of economic impact on the real estate sector is uncertain, albeit, Work Place behavioral changes shall lead to certain pockets of Commercial spaces becoming obsolete & economic uncertainty shall drive down Residential Real estate
• Higher risk of Brand burn out leading to store closures impacting Landlord Rentals in Retail markets
• Developers Primary Residential Sales shall be severely affected & cancellations shall be triggered owing to uncertainty & fear of job losses
• Work from home model shall be in practice for a while & shall prompt Lease Renegotiations & re-structuring & corporate may postpone decisions for fresh office space
• The sector shall face demand shock as buyers shall focus on leasing residential units rather acquisition
• The approved/Licensed projects shall be on block as Developers won’t be able to monetize their inventory & shall try & structure as Investment products
• Co-working spaces shall take a hit as Free lancers & smaller firms shall prefer WFH & conserve cash presently

Long Term Impact:

• The projects shall be delayed by an average of minimum 6-9 months as developers shall face shortage of funds & non monetization of present inventory
• The consolidation in the sector shall be accelerated leaving fewer number of Key players in each state
• Retail, Mall & luxurious Space shall take long to revive & stores shall seek rental renegotiations in wake of weak consumer confidence
• NRI’s may look forward to re-invest as they may find rational values which shall be further facilitated by depreciating rupee
• A bright side can be with softening in Capital Values and completion of new projects over the next few months will offer value proposition to end-users to upgrade their present housing

   

2. How are developers working on innovative modules to sustain sales?

Real Estate developer’s abilities to combat will depend on their responses to imminent & urgent challenges to the Sector on two fronts i.e. managing the current declines in short-term cash flow and re-igniting demand for space.

• The demand creation in short term is the key challenge for all developers. The developers need to substantially incentivize the End users to take a plunge by benchmarking their pricing with secondary market & aligning a lucrative payment plan with added freebies like 2 Years Maintenance free period giving buyers a perception of undeniable bargain
• One of the key segment each developer needs to focus are the Empty Nesters who have the desire yet fall short on means due to high down payment with Bank Mortgage. Developers need to align to minimize initial down payment and get the bank leverage done and stagger the initial down payment so the first time buyers can take a plunge with limited/ No initial investment
• The other important aspect is channel management. Indian real estate being highly fragmented is driven by Real Estate Brokers who play a key role in decision making with their customers. Each developer can make a small pool and additionally incentivize with smaller & achieve able targets
• In terms of Cash Management, Developers need to focus on incentivizing the receivables by offering Timely payment discounts so existing buyers don’t default on the remittances
• On a structural level, Developers need to go back to drawing board for their existing/ New Projects making them more integrated with higher space standards, improved amenities and embedding special Health Care facilities as one of the Key focus Areas
• Further, Developers need to rework their digitization allowing buyers for virtual viewing, Interactive E Brochures , a 3D Mapped & walkthrough for the new projects, projects under construction which shall give them confidence to re-commence buying

   

3. What can the government do to facilitate real estate recovery from this crisis?

The Governments role in providing stimulus for Real Estate sector is extremely pertinent as Sector has been reeling under duress for a while and shall be further clobbered by present crisis. Some of the measures which Government can consider are as below - Moratorium on classification of NPA’s to developers for one year

• Tax credit on Purchase of Residential real estate to in affordable to mid segment bracket
• Residential Loans to be given at concession for first two years as Sector gets a stale outlook
• On commercial end, Govt can give a big turnaround by reestablishing SEZ’s with no corporate Tax & lower Income tax for personnel working there for next 10-15 years to give a big push to Manufacturing ( Focus on imitating China Supply Chain) & IT services
• On a micro level, States need to give concession to the tune of 50% in property taxes to individual Owners as Lease rentals shall be affected across the board in residential & commercial RE
• Further, Stamp duty & registration charges need to be reduced for short term as End users need to perceive tangible benefit in asset acquisition

   

4. What are the sector's expectations from banks & financial institutions?

Creation of Liquidity in system as developers shall be facing dearth of avenues which were compounded by abysmal state of Real Estate focused NBFC’s. Working in Tandem with Government agencies so as to not classify developers as NPA’s owing to expected abatements , albeit create window for restructuring of Existing debt