Real Estate's Home Truths
The COVID-19 pandemic has adversely impacted the Indian economy. However, the real estate sector seems to be among the worst hit, due to the pressing concerns about demand for homes in the short-term.
Further, now that construction activity has resumed in certain parts on the country, due to delay in material delivery and acute shortage of labour, it may take some time before construction is able to resume at its pre-covid pace thereby impacting the supply side as well.
For the near term, developers are focusing on completing projects that are near completion and hoping to unlock value. Listed below are some of the challenges being faced by the construction sector and how this is expected to affect the sector in the near term.
1. Impact of Government of Policies: With the announcement of the economic stimulus package, steps are being taken to revive the sector. However, more steps including reduction of high premiums and stamp duty could potentially assist developers in tiding through this difficult time and also help boost demand for homes in the near term.
2. Digital Push: Innovative digital strategies have been adopted by developers to attract customers in the past but seeing as things are shaping now, it is likely that developers will move towards moving all their interactions with customers and prospective customers online. This will include virtual tours of the premises, streamlining the booking process etc. Disruptions in the arena of virtual reality and augmented reality are likely to help developers tide through this time and reduce face to face interactions with their customers.
3. Outlook for Sales: The long term outlook for sales will continue to remain positive. Pricing is likely to hold steady and customers will likely return to the market sooner than one thinks. In the near term, developers are likely to be more focused on construction and those that are able to construct quickly will reap the benefits. With COVID-19 cases likely to reduce in before the end of July, many will look at the upcoming festive season starting in August and extending till November to attract sales.
4. Investment Opportunities: The Reserve Bank of India (RBI) has recently slashed repo rates by 0.75 basis points (bps) impacting the banks to reduce interest rates on home loans. In the months to come, these are likely to reduce further thereby bridging the gap between interest rates and rental yields. With expected bottoming out of pricing, homebuyers could look at this opportunity to make the decision to buy.
5. Rise of Home-Office Spaces: The lockdown resulting from the COVID-19 pandemic has given people a taste of what their retirement or work from home life could look like. With organizations looking to adopt the work from home culture even after the lockdown is lifted, individuals who are required to work from home may look at this opportunity to buy larger homes with space for a dedicated work station or room. Further, some people have had sour experiences with renting through this period and therefore might look to lockdown a permanent residence as soon as they are able to.
