Stay Home â€“ Stay Safe, Work from Home, Home Quarantine etc., are a few frequently used statements during this pandemic. Home – One of the essential requirements and still a dream to many!
Ever since 1.3 billion people went under lockdown since March 24, all businesses in India, barring essential services have been stalled including the real estate. Nevertheless, assuming that property prices are going to drop significantly or witness a crash would be wrong.
The analysts suggest that there could be problems in 3 kinds:
Prices: With uncertainty looming over jobs, salary cuts and future cash flows, big-ticket discretionary purchases would not be the priority of the Indian consumers. Developers with high number of ready to move and unsold property will not be able to hold the inventory for long, in this case those developers who have their interests at stake may dispose their unsold inventories at a lower price from already inflated rates but this is only going to be momentary. Areas where there is higher influx of projects are going the places that are going to take a massive hit for example: Cities like Mumbai and Delhi NCR are going to affected the most. While only the duration of the pandemic would be the decisive factor impacting prices, a sharp downwards movement is an unlikely scenario. Sellers are likely to postpone the transaction till they see a possibility of selling the asset for at least some profit.
A lot of articles in the net mention that the prices are likely to fall drastically, we have seen similar speculations in the past during the GST, demonetization and RERA launches. In fact, what we have observed is that buyers fall prey to such speculations by delaying the purchase, expecting a fall in the price and loose their opportunity to invest in their dream homes.
If developers sell their inventory at a lesser price, there is a possibility that customers who have already made the bookings make cancel them, according to RERA regulations the builder is bound to return the money to the customer with interest, hence it is highly unlikely for the developers to sell the flats at discounted rates. The developers will not only become bankrupt but will loose trust and brand equity in the market.
Since the launch of new projects will be shelved for time being because of the market slowdown, eventually the inventory will be absorbed and later because of the shortage of inventory the prices are going to skyrocket!
Demand: Because of the market slowdown, residential sales, may now range between 1.70 lakh and 1.96 lakh units, which in 2019 stood at approximately 2.61 lakh units. New launches may also witness a 25-30 percent decline during the same period to anywhere between 1.66 lakh -1.78 lakh units.
The uncertainty in mutual funds and stocks is again witnessed by the consumers during this pandemic, with the decrease in the lending rates to 7.5 %, consumers would want to take advantage of the incentives and we expect the demand to invest in housing increase. A weaker rupee may also attract investments from the NRIâ€™s. In the prevailing conditions, real estate assets are indeed the safest investment, to earn decent returns.
Labour: The large part of human resource is largely still at construction sites. Since the transport is halted and the borders are sealed majority of the work force were not able to go back home, which means when the lockdown is relaxed the works can start immediately. Few states like Karnataka have already given a go ahead for real estate works on site.
Finances: Countryâ€™s real estate sector was at the recovery stage when the outbreak happened. Had the industry been at its peak, with developers in the middle of far more ambitious projects, the impact would probably have been 5â€“10x times more damaging than it is in the current situation.
Government is supporting in revival of the sector through lower interest rates and with the SEBIâ€™s initiation to deploy funds to reputed builders for projects which are stuck due to liquidity constraints.
Construction Cost: Though the raw material costs are still stable at the moment, we expect them to increase in the near future because of the lockdown and the market slow down. Post recovery we expect the prices of the real estate to massively increase because of the increase in the construction cost.
With US tightening the immigration laws, many Indians would plan theirfall-back option to comeback to India, which would in turn increase the investments in housing sector. With the lending rates further decreased we expect to see an increase in the foreign investments in the housing sector.
Because of the pandemic, our expenditure on lifestyle has been drastically reduced. Expenditure on shopping, travel, shopping, entertainment etc. Even when the pandemic is relaxed there would be considerable changes in or lifestyle until we find a vaccine, social distancing will be practiced as the new normal, which means there would be a decrease in lifestyle spends. This would make people to look out for other investment avenues and housing is one of the sectors which would attract investments.
On the whole, we do not expect the real estÂ¬ate investments to take a massive hit because of the pandemic. Few realtors with their interests at stake might take a hit but organised players will clearly have a vantage point to recovery. On a long run, we expect a surge in the pricing and increase in demand in the near future. After all, it is not going to be a bumpy ride as it is expected to be my most critics and analysts.