Impact of Corona virus, the Covid-19 on Indian Real Estate Property Market
The outbreak of COVID-19 the flu-like epidemic and its rapid spread across many countries affected the trade and industries worldwide disrupt business cycles are bound to impact the demand for commercial office retail as well as residential spaces in the real estate market of India. The governments, medical & security staff, business houses, NGO and communities put their best efforts towards medical facilities, social distancing, waste management, Increase hygiene and cleanliness measures to reduce the adverse effects.
COVID-19 infected cases rising and with the whole nation in 21 Days lockdown affected the construction activities keeps piling up the cost. With the efforts to address the pandemic effects likely to continue over the coming days whereas the real estate and infrastructure investors to focus their immediate efforts on managing the risks in their investments because the short-term impacts on economic growth, business activity and individual behavior can’t be ignore.
Public protection and safety are the top priority of the day and their wellness needs to be put at the forefront as a basic corporate duty of care to employees and to ensure workplace productivity in the hospitals & testing labs. The detail contingency plans are being implemented for employees unable to commute, travel or occupy corporate locations for essential services.
COVID-19 may have long-lasting consequences that will affect corporate decisions however the corporate preparedness on improving the situation, priorities fixing, safety or protection, close monitoring, effective communication, business review and long-term decision-making strategies as per the ground realities needs to be chalk out for the future course of actions to cover up the backlog.
The recent turbulence in the stock market has already impacted the investor’s sentiments and their portfolio. The financial capacity of small and medium size business expected to be affected. Some of the companies opted flexible work schedule, better manage telecommuters via video conferencing and frequent online meetings to streamline day to day working, permissions, suggestions, comments and decision-making processes to ensure rapid response and enable effective communication to maintain business continuity.
Tourism is one of the worst affected area and the ongoing travel bans, flight cancellations hits the hospitality industry and the earning potential of tourism business dependent across India. Supply chain disruption should be anticipated which affects manufacturing facilities may face immediate short term interruption, logistics, labour costs, productivity and hedging risks across the industry.
The realistic scenario based planning approach should be more effective, rather than betting on predictions for current eventuality and slowdown. The health and well being of employees should be a primary corporate concern, followed closely by business continuity plans needs to be agile and flexible.
COVID-19, the flu-like epidemic has directly affected the construction activities. Most experts and industry insiders agree that the lockdown will certainly have an adverse impact on economic activity across sectors including real estate housing market have almost halted the construction, heavy machines, materials and allied activities.
The real estate sector contributes significantly to India’s economic growth and it is important to analyse broadly the magnitude of impact and how the outbreak will influence the sector. The use of latest technology for valuation, data mining, real estate market forecasting, sustainability, mortgage risk analysis, sustainable business strategies can contribute significantly to depict the suitable solutions and strategies for developers, investors or contractors.
The development and transaction activity is likely to be impacted as consumer confidence reduces, workers availability are disrupted, the high commitment decisions on hold, delay in drawing approvals, interrupt in availability of building materials until there is more certainty about the economy and jobs. It is fact that the ripple effect on real estate due to interest rates are well below historical norms at the same time inventory is high may help to improve the housing and rental demand after eradication of corona.
However, the government might introduce measures that might make it more lucrative for buyers to invest in property including fall of interest rates, reduction in stamp duty in some states and tax rebate to make home-buying affordable to boost consumer sentiment. This should help to reduce the cost of borrowing and make housing more affordable which should also help to offset some of the negative impacts in housing demand associated with current uncertainty.
Financial market volatility could reduce demand for luxury homes, while also create potential opportunities for some luxury home buyers have access to more real estate inventory, possibly at better competitive pricing, and avail historically low-interest rates.
Many developers are dubious and have their reservations about the launch of new projects considering the current pressure to liquidate unsold inventory. The holding cost of ready to move and ongoing project properties will go up in a market that doesn’t have too many buyers at present. Therefore, this might not be the right time to increase property prices however they needs to focus sincerely to complete the pending projects in time as per committed specifications to deliver and rebuilt the buyers confidence in spite of the possibilities of material price hike and labour shortage in the coming months.
The real estate industry is facing the turbulent effects of COVID- 19 negatively impacting the residential real estate demand especially in the immediate short term in a massive reduction in site visits, enquiries and transactions resulted the residential property sector continues to underperform as an asset class impacting the return on investment. Affordable and mid-income housing that has been in demand over the past several years may also come under pressure as the prospective buyers are young working class population will not be certain about their jobs continuity. It will impact their buying process as they may not be able to take added liability of EMIs due to buying a new property. The inherent domestic demand for housing will remain to be strong and perhaps the price correction due to the epidemic may open an opportunity for buyers to buy properties on a much lower value. Popular demand for neighborhoods that promote health and wellbeing should increase the popularity of green, mixed, sustainable, walk able places with local shops and other essential amenities.
The commercial office and retail real estate segment, would also adversely impacted due to pandemic effect, which had been performing well during the last few years despite slowdown in the overall property market. The commercial office market has been very resilient and likely to be more impacted If the virus keeps longer. The retail commercial space comprising mainly of shopping mall will be affected in a major way due to its closure across the country whereas in the office space segment, the repercussion are expected to be marginal. The pandemic has hit at financial year closing, which remains extremely crucial for most businesses affects demand for co-working spaces could decline significantly. There is a price correction expected however, the large commercial leasing will still look un-impacted due to a healthy long-term investment by many international companies in the positive India growth environment.
The developers, landlords and tenants are likely to be review their lease agreements and evaluate how they will perform their obligations in the event of their business in near future. The severity of any recession will vary as per lockdown duration, magnitude of productivity loss and interruptions in global supply chain whereas the impacts will range from poor consumer confidence, reduce new launch, lower housing demand and affordability pressures along with some social and psychological consequences.
On the economic front, the stock markets took a huge tumble worldwide including India with the Sensex and Nifty dropping to record lows the stock prices are in turmoil. The Real Estate industry in India is likely to see an acceleration of consolidation in 2020-21 as operating conditions become more difficult for small players due to liquidity crunch. However these are temporary disruptions and the condition would definitely improve, and will not hold back the economy and the industry for a long time. We, the human are not new to epidemics and every challenge should be turn into an opportunity and come out stronger to look forward an exponential growth, prosperity, safety and happiness in the society to offer lifestyle living spaces.
Disclaimer: The information provided in this article is general in nature and does not constitute personal financial advice, prepared without taking into account your personal objectives, financial situation or needs. The views and opinions expressed in this article are those of the author as an individual and do not necessarily reflect the views of propikr.