May 2020
25

10 Challenges faced by Indian Real Estate Market amid Covid-19

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Indian real estate has had its own set of challenges brought in by the reforms of RERA, GST, demonetization, insolvency & bankruptcy code, and prohibition of subvention scheme. The sector has emerged stronger in terms of fiscal discipline, accountability and transparency.

The current COVID-19 lockdown has brought about an impediment in the growth trajectory of the sector. We might see a lot of changes going forward:

1. Importance of Home: Home is one of the stable things in life, a man’s haven. Home brings about a sense of security that brings about stability and fulfills our emotional need. House buying is usually the single largest investment in a person’s lifespan. With the current scenario, the true value of owning a home has never been so prominent. If people were moving towards other investment avenues, because traditional real estate did not seem lucrative enough, the Coronavirus-induced crisis could force a rethink. For most people, the security of their own homes is the only security that they enjoy right now, as the prevailing negative sentiment affects asset markets, from equities to currencies.

India might see a shift in India’s rental population wanting to have an asset in their name. A home is an asset that grows both in value and in worth. With working from home and healing from home gaining popularity, the shift of rental to owning is just around the corner. 

While many investors will take time, select well-funded institutions and high-net-worth investors with longer-term investment plans might be among the first movers.

2. Digitalization: Most real estate businesses are currently highly dependent on physical visits, face-to-face discussions and transactions. COVID-19 lockdown has accelerated technology-led home buying in India. In order to avoid physical contact and reduce the risks of contagion, a lot of focus will be placed on technology including product display, discussions, comparison and transactions. This will allow the real estate professionals to develop a fast and transparent process by helping the clients with maximum information and visualization and establishing a greater connect with the client.

Virtual site visits, property selection, negotiation and purchase process can now be done digitally. Real estate will see new trends in the real estate market due to COVID-19 such as enhanced adoption of online portals, shift from brick and mortar to click and tap, adoption of remote-working technology with more emphasis on robotics and unmanned vehicles etc.

It is thus imperative to increase online presence so that the industry is relatively less affected by such pandemic and other crisis-like situations that deter consumers from physically visiting sites.

3. Requirements: With the increasing trend of work from home, it is forecasted that in the medium to long term, demand for smaller preconfigured space on flexible terms will be seen. However, COVID-19 has brought in a demand for different real estate assets. 

  • Home Office- COVID-19 has brought in the trend of work from home and it is here to stay. The space availability is re-evaluated. This will set in a demand for an additional 0.5 room in the standard 2,3,4 BHK. This home addition can be a great way to create flexible space for working from home. If you’re interested in boosting the value of your home, a home addition can be a fantastic choice. 
  • Staff Room- Housing domestic help is bound to gain popularity after the hardship people have had to go through during the lockdown. A room for house helper might gain popularity because of the same, especially in villas.
  • Home Theatre- COVID-19 has set in a trend of movies being released online on digital platforms. Movie-buffs would want to enjoy d same experience at home and hence home theatres might become the new norm. Be it sports events, online series or movies, this room is bound to bring in an experience quotient. 
  • Value for open spaces- The lockdown has connected us to Nature again. Need for fresh air and open spaces has gained popularity in the lockdown. In order to enjoy the openness, people might start looking for larger balconies, terrace spaces, garden spaces, and sit-outs.
  • Gated Communities- For many people, safety and security are the main appeals of a gated community. This pandemic has brought in a sense of comfort as gated communities have taken extreme measures to fight the pandemic, controlled access, blocking of solicitation, ensure supply of essentials, community helping for the elderly staying alone, pet care etc. which are not possible for stand-alone houses and buildings has brought about a greater sense of community.
  • Warehouses- The pandemic has accelerated the trends such as online grocery purchasing, omni-channel retailing and the integration of technology into warehousing. Greater diversification in terms of sourcing will lead to an increase in demand for warehouses in order to de-risk the production or distribution channels. This will lead to more multifacility, multi-location strategies and hence more need for warehouses.
  • Retail- It is believed that Indian consumers may not embark on a shopping spree of non-essential goods immediately post lockdown. Shopping malls have transformed into community centres where people meet, greet and eat, and hence consumers may again return to these places to satisfy their socializing needs. The revenue-sharing model is expected to become dominant as retailers will prefer to partner with malls to drive footfalls amid such unprecedented crises. The mall owners are expected to revive footfalls and lure customers by organizing events, performances, seasonal sales and discounts etc.
  • Care homes and healthcare facilities- This covers the spectrum of retirement living at care units to intensive needs-based care hospitals. With the challenges posed by COVID-19, the support by the government and the need for healthcare units due to the pressures of this unprecedented pandemic will force new hospitals and care units being constructed and put to operations. 
  • Holiday Preference- International travel is expected to see a dip in the near future. Travel patterns are expected to shift toward drive-to-resort destinations and low-density areas with open spaces to avoid large groups of people. Hence the demand for holiday homes, resorts etc. is likely to go up. 

4. Design: The ongoing health crisis should accelerate the trend of outsourcing over the long term. There will be increased demand for new workplace design, including more digital, flexible and health-oriented working solutions.

Many developers have already started designing projects that incorporate touch-free elevators, better ventilation, construction of row houses as opposed to multi-storey, dedicated spaces for quarantine rooms, business centres to facilitate work from home and even dedicated disinfectant zones at the entrance or within complexes. 

5. Location: Man is a social animal and considers a holistic approach while narrowing down a location for his home. A few factors considered are proximity to work, connectivity, healthcare, educational institutions, shopping malls etc.). However, COVID-19 has brought in a new thought process. Going forward, people might also consider the density of population as a prime factor.

Sub-urban areas and truly scalable smart city solution will gain prominence due to the pandemic and is unlikely to affect the long-term trend in growing urbanization. A lot of focus will be on public health and safety, and to deliver greater investment in public infrastructure.

6. NRI Community: Coronavirus has created an investment opportunity for the Non-Resident Indians (NRIs). The investment opportunities in USA and Europe have fallen due to the severity of the pandemic. Moreover, with the rupee plummeting against dollar, recent stock market volatility and reports of recession hitting market has brought a renewed interest among NRIs to invest in the Indian real estate assets for long-term, especially in the Silicon Valley of India. All this has led to NRIs having more disposable money to realize investments in Indian markets.

Potential buyers, are now getting enough time to research properties online and hold elaborate discussions. They have time make a more informed decision based on groundwork about the project, its developer, his overall credibility and track record of previous projects, the location and property prices in the vicinity, and the overall trends in the property market. This is helping the buyers in strong negotiation with the builders.

The favorable segments in realty for NRIs, will be commercial complexes and luxury housing units, preferably read-to-move-in.

7. Make in India: The coronavirus outbreak has brought about an opportunity for Indian businesses to increase the production capacity and give a thrust to the “Make in India” campaign.

Construction activities have come to a grinding halt as allied businesses such as steel, heavy machinery and other raw materials are heavily dependent on Chinese import. With the Chinese supply being ruptured, the industry is seeking to explore other markets to procure raw material and decrease dependence on Chinese imports. The steel companies are set to increase production capacity and grab a larger market share. This would make raw materials such as metal panels, steel bars, heavy machinery, solar panel etc. be available locally. 

8. Finance and returns: Though the Indian real estate market is reeling under the COVID-19 impact, market experts say that it can be a very positive time for home buyers as they are at an unprecedented advantage to negotiate good deals on ready-to-move-in options. The interest rates are at the lowest of 7.15 to 7.8 per centleading to real estate becoming a very attractive proposition. The home loan of up to 80-90% can be leveraged which brings down the down-payment.

Real estate has emerged as one of the best options to invest followed by fixed deposit, gold and the stock market. Real estate continues to offer good risk-adjusted returns. This portfolio diversification advantage of real estate investments is only emphasized in periods of increased volatility in the equities and commodities markets.

9. Measures taken by the Government: The Government of India and the Reserve Bank of India have also announced several measures to combat the social and economic crisis arising out of the COVID-19 breakout. To boost the real estate and construction sector, the Government has extended a helping hand through certain measures.

  • With the RBI reducing the Repo rate to 4.4% and the reverse repo rate to 3.75%. and Cash Reserve Ratio (CRR) to 3%, home loan interest rates have now come down to as low as 7.05% to 7.80%. the banks are in a position of more distributing more credit. This is going to make credit more attractive and infuse liquidity in the system.
  • The RBI has provided for a 3-month moratorium period on all kinds of loan (including home loans), will not be counted for the purpose of calculating Non-performing Assets (NPAs). This is an important step to regulate and supervise the monetary system of the country and may help individuals and companies to manage their working capital and ensure business continuity.
  • Maharashtra and Karnataka RERA have extended the completion timelines of the real estate projects by three months each. This step will help the distraught developer community immensely.
  • The RBI has provided a funding of INR 1 lakh crore, part payment of which will be made to National Housing Bank (NHB)
  • The Government has urged the State governments to utilize Rs 31,000 crore fund for the welfare of construction workers to minimize the adverse impact of the lockdown.
  • Release of a relief package to the tune of Rs 1.71 lakh crore will primarily benefit the migrant construction labourers.
  • COVID-19 is treated as an event of ‘Force Majeure’ under RERA.
  • Registration and Completion dates are extended suo-moto by 6 months for all registered projects expiring on or after 25th March, 2020 without individual applications.

10. Sustainability/CSR: Developers have spear headed corporate social responsibility during the pandemic. From housing and essential supply to their laborers, to donation of testing kits and money to the PM care funds, the industry is standing strong with the Government of India in this time of need.  There will be an increase in the sustainability, and through this, the larger good of the society will be achieved.

COVID-19 is going to have a lasting impact on every industry. However, we pray that real estate might see a better recovery, sooner than ever.

Updated: 25 May 2020
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