Apr 2020
27

COVID-19: A Whole New Perspective for the Indian Real Estate Industry

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COVID-19: A Whole New Perspective for the Indian Real Estate Industry Update

In this time of an uncertain future, many research reports and media houses are continuously spreading negativity on the real estate sector and projecting a 15% to 20% correction in price. I think common sense continues to be a rare commodity in this world! And this holds true for research reports that publish such facts without checking the ground reality. How can a real estate developer in today’s scenario bite the bullet of an additional 15% discount when their net margin is less than 15% in a positive market scenario? This is absolutely impossible and even if any developer manages his cash flow or is compelled to reduce prices to increase sales, the project shall get delayed or will grind to a halt. This is certainly not going to happen; in fact, these solutions are not required. Let’s analyse the points below to understand why real estate is still the best investment you can make today:-

Covid-19 is going to change the way we live and travel. Social distancing, health and hygiene shall become an important part of our life. We can certainly see a positive shift in trends from renting to buying. People living in a rented accommodation in a non-gated community have realized the importance of open space, health, hygiene and well-ventilated homes during lockdown. Imagine the mental well-being of people in the opposite circumstances, as they can’t roam freely in the house due to space constraints and neither can they go out due to lockdown restrictions.

In the recent past, real estate demand was less among the new millennial because they have developed a mantra “stay light, stay happy “, which means a move from owning to renting out houses to stay free from any long-term commitments. By doing this do you think they have saved a lot of money or created wealth for themselves and for their next generation? The answer is an emphatic NO. As there was no problem with their cash flow, they got comfortable with an expensive lifestyle, travelling for pleasure, spending money on partying, apparel, watches and electronic gadgets. So ultimately what we have done is, we have made them irresponsible. Now during the lockdown, they are realizing the importance of having their own private space to work and live, they have also learnt that their investments in equity and MF is continuously declining and deposits in bank are hardly giving returns. Considering all the learning’s and facts, the millennial next move will be in real estate.

Banks and NBFC scams in recent times have reduced the confidence of retail & corporate clients and now retail customers want to move towards an asset class which is tangible. People were recovering from this shock and were contemplating other means of investment, when the stock market crashed by 40%. It was an unusual event! The problem with such crash is we don’t know how long it will take to recover your principal, and in case if you need money in tough times such as now, you have to book losses or knock the door of a bank to take a personal loan at higher interest rates. However real estate is a bankable asset. The investment will not disappear overnight and also it doesn’t block your entire savings. You just need to invest up to 20% and utilise bank funding to grow your investment. Secondly, when you invest in stocks, bonds, mutual funds, your investment is purely dependent on external factors and you have zero control on your investment. However, real estate will always have more opportunities like you can rent it, refinance it, you can sell it and move to other real estate investments. Last but the not the least, selecting good properties is always easier than selecting good stocks. Bank deposit schemes are the worst investment one can consider in current market conditions. The deposit rates are at all-time low i.e. 6%, which means after adjusting inflation and TDS one can only expect negative returns with a fear of losing money if the banking/financial system collapses. Hence, real estate is the most favourable, trustworthy and economical investment considering low home finance costs, income tax benefits, reduced GST rates, PMAY scheme and low registration and stamp duty for affordable housing.

MUH - Multi Utility Home is the new trend: In a recent article, major IT companies in India are exploring an option for their employee where 75% of their workforce shall operate from home on rotational basis and only 25% need to be present in office. This means more demand for residential dwelling. Real estate developers will have a golden opportunity to make smart homes with office / study rooms with provisions to install all essential gadgets, good lighting, sound proof the room which shall be isolated from other rooms by providing separate entry and exit.

The demand shall further rise for Ready to move in units and the units nearing possession (1 yr.) as new launches shall deferred by another six months.

We can also expect great demand for affordable housing because of affordability and mass movement of rental class, as during such a pandemic, having your own home is the best security one can have. If you look at the financial working for a 30 lakh home, you will be amazed to know that just by paying a down payment of 10% and post adjusting current rent and income tax benefit, one only needs to pay Rs.5,500 – Rs.6,000 as monthly EMI to buy their dream home. This is TRUE! Get this checked with the help of a financial calculator and some basic mathematics.

NRI investments shall increase in real estate: Corona/Covid-19 impact on global economy has given a huge opportunity for Indian real estate companies as NRI customers settled in US/UK/Australia/Spain/France/Dubai/Russia/Singapore are seriously thinking to migrate/invest in their own nation which is much secure and safe from such a pandemic, as India has successfully controlled this virus and has set a good example for the rest of the world. FIIs are dumping equities and considering this as risky asset as Covid-19 spreads across the world. Low ROI on bank deposits is another opportunity for NRI investors to use their deposits in buying a home at lower interest on home loan while getting an added advantage due to depreciation in the value of Indian rupee.

India becoming the world’s new manufacturing hub: A $20 trillion lawsuit has been filed against Chinese authorities in the US over the coronavirus outbreak, claiming the virus is the result of a biological weapon prepared by the Chinese authorities. China also revises Wuhan’s Covid-19 death toll by 50%. They are raising stakes in European and Asian companies which clearly reflect their intention of taking control of management. Such back to back episodes lead by lies, secrecy and cover-ups have created a trust deficit among other nations and as a result China’s reputation has taken a big hit across the world. Under the circumstances, India has a fair chance to replace China as a global economic leader. India has a competitive advantage in IT services, Pharma, biotechnology and medical tourism over china. Once the pandemic is controlled, India will actively engage in rebuilding the world economy. This will surely increase demand for real estate and we can also expect more FDI in real estate sector which shall further strengthen our economy. The recent FDI investment of 43,500 crore by Facebook in Reliance Industries is a positive move to show confidence in India, as the best investment destination.

Let us arrive on the conclusion of the whole matter, Home is the only security one can have in a pandemic, real estate prices shall not get corrected further, mass movement of rental class to real estate buying, change in mind-set of new millennial from renting to buying, Shattered confidence on other assets classes like equity, bonds and mutual funds, Scams in banking and NBFCs, rise in demand for next generation home – MUH, home loan finance at an all-time low, reduced GST rates, PMAY schemes, deferred payment schedule from developers, depreciation in value of India rupees (For NRIs) are all reasons which will increase real estate demand and prices positively.

I would request all our Developers and Channel Partners to stay together in this tough time and stay away from negative news on real estate. We are in the best business and real estate will continue to be seen as the safe haven and especially in tough times where other investments are eroding overnight. We should also not forget that India is the youngest nation and oldest civilization in the world and together we can rebuild this prosperous nation.

Updated: 4/27/2020 4:37:28 PM
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