The novel coronavirus has disrupted economic activity of real estate during the pandemic all over the globe. These unprecedented times have brought an unprecedented crisis. Nearly every industry saw some kind of a halt in its activities, causing a loss of 40-50% of the economic activity in the residential real estate sector, which was already operating on the lower side.
Demand-Supply chains of the real estate industry were heavily disrupted. Disruption on the demand side was due to the heavy migration of workers from urban to rural areas, overpricing and shortage of raw-material of nearly every product, and halts in construction projects caused due to the lockdown created an immense hole in the industry growth. The property developer and brokers had to face severe crises while selling the assets, as there was almost nil demand in the residential as well as the commercial sector.
Impact Of Covid-19 on Residential Real Estate During The Pandemic
The situation was quite grim in the residential sector of real estate during the pandemic due to rising inflation in other necessary products, the saving rate of common consumers was declining more than 40%, leading to a slump in housing requirements by such consumers.
The Net Income of the consumer was cut by 60% and many of the middle class families were surviving on their savings.
Indian Economy saw an unemployment rate as high as 6.4%, numbers never witnessed before, these levels contributed towards demand for rental house increase.
The global health crisis led people to hold their decisions to buy a new home and rather invest in other health issues.
Impact Of Covid-19 on Commercial Real Estate During Pandemic
The Commercial Real Estate during the pandemic was hit quite hard. With a downturn in the entertainment industry, Big movers like DLF and many real estate dealers had to pay fixed costs like: Rents having zero income during the lockdown times. Many brands and players went insolvent due to negative income.
With movie halls, dining facilities, restaurants, cafes, malls, etc. all being shut down, the requirement for newer such projects and property went from the top to nearly negligible.
The real estate market witnessed a fall of 26% in just one year. Not just this , the new work-from-home norm brought a revolution in the corporate sector leading to a more severe crisis in the commercial real estate sector.
Companies were opting out for cost-effective work locations, heavy downturns in expenditure on development. New Office requirements and renting demands saw a slump of 55% according to the six year average.
Some Positive Parameters
There’s always a ray of hope which weathers such arduous times. If we look at the positive numbers and statistics of the Pandemic, the sector has also witnessed some optimistic concerns. During the pandemic times, the prices of the real estate projects and property were highly volatile, therefore people were taking a step back before investing in such a highly volatile market. Such a lower rate of demand led to fall in prices which, combined with an interest rate cut on housing loans to 7%, worked as a major boosting factor.
Not only this, nearly every India’s metropolitan city had sky-rocketing legalities rates while buying property.
Government imposes heavy taxes with negligible subsidies in this sector to the people of India.
But to relocate the demand and focus of the buyers toward the falling property prices, the Government took a major step of reducing stamp duty on such land and property.
‘The panic due to the pandemic created more disruptions than the pandemic itself’.
The moment lockdown was announced the fear led to a market crash in India’s Largest Unregistered Real Estate market. Brokers had to lower their fees, people were cancelling on bookings, which was handled with precaution leading to buying of houses at lower prices and to foster healthy living.
Government’s Support To The Sector:
No industry can foster without Government’s Support. Although the pandemic had hit the Government itself, the Government was making steady efforts towards reviving the looming real estate during the pandemic . To manage the extreme price fluctuations, the government was making efforts to remove the curbs and disturbances in the raw material line. They also reduced stamp duty to almost nil to attract heavy investing in the sector.
New schemes were launched to extend the project completion deadlines, projects were provided extra supportive the RERA act launched by the Government in 2020. The act supported a discount on raw materials, circle rates reduced and tax concessions.
Despite such efforts the sector was showing minimal recovery. Having a humongous Fiscal deficit amounting at 7.96 Lakh Crore, the Government was forced to reduce infrastructural and developmental expenditure. Leading to a crisis in public sector property development and expenditure which is responsible for catering 70% of the households in India.
What’s required and The Expectations of The Real Estate Sector
Every sector is responsible for the development of hundreds of other actors as well. Therefore the industry is expecting an expenditure increased by the government, to allocate a high Government a scheme allocating 25,000 crore to the sectoral projects and infrastructural development, but currently the need is to cut taxes and duties on such property developments.
In such a crisis, banks had to face heavy losses and many of the NBFSc were operating at Negative Returns, reducing the ending capacity towards development. Adhering to the issue, the government did reduce lending and repayment interest rates but there is also a need for capital infusion in the market and setting up of institutions supporting new projects.
Outlook Of Foreign Investors:
One such advantage of such tiring times was that the Foreign Investors saw huge potential in the Indian Economy, be it in the Business sector, manufacturing units, corporate expansion. MNCs all across the Globe showed extreme interest in the Indian real estate sector during the pandemic, the demand for idle land for setting up external manufacturing units saw an incredible increase, nearly 50%, shifting the focus from Chinese units to India.
With the rupee depreciating against the dollar and the situation seeming to get better, the FII saw huge flowing profits. This led to capital infusion in the sector as well as the Economy.
Therefore, it is clear that no industry was left, but the real estate industry was hit hard at the beginning of the pandemic. But the sector is showing positive numbers due to the rising trust of the Indian Government and other countries as well.
The huge potential and spare land can contribute to rise in price to the normal profit making levels for the owners, sellers and brokers, who have been operating at the negative levels since the pandemic has started.
Now, the only need is to realize such potential. As our economy revived with skyrocketing growth numbers after the biggest of crisis such as the NBFC crisis of 2018, Demonetization norms, GST revolution, 2008 financial crisis.