Of all the stories about Birbal’s quick-thinking, one of the most popular is the one about how Emperor Akbar drew a line and asked his courtiers to make it shorter without touching it. Birbal stepped up and drew a longer line adjacent to the original, thus making it ‘shorter’.
In other words, if 2019 was a problem year, 2020 was the longer line that made the problems of the past seem smaller in comparison to the present. Like most other sectors, the real estate sector is hopeful of returning to a 2019-like situation in 2021. If sales slowed in 2019, they stalled in 2020 and ironically that’s made even the slower sales scenario of 2019 an aspirational thing for developers.
The real estate industry, which has been facing a multi-year slowdown exacerbated by the dislocation caused by demonetisation, GST, and RERA, was hoping for a significant recovery in housing sales during 2020. However, it turned out to be just the opposite as the COVID-19 outbreak devastated all sectors of the Indian economy.
The construction industry contributes nearly 10% of gross domestic product and employs more than 50 million people. With the economy headed for its steepest annual contraction on record, the prospects for any quick turnaround look dim. The Reserve Bank of India’s 115 basis points of interest-rate easing in the first half of 2020 hardly did anything to revive demand in a country where millions have lost jobs after businesses shut operations due to the pandemic-induced lockdown. The nationwide lockdown imposed in March brought the entire real estate sector from construction to sales to a near standstill. Although the economy started to open up in June after a two-month lockdown, the housing market remained slow until September, even though developers and property brokers quickly adopted new technology solutions to boost sales.
The Central government applied the force majeure clause under RERA to extend the deadline for completion of projects by 6-9 months to give builders some breathing room. That apart, the Credit Linked Subsidy Scheme (CLSS) for the middle-income group (MIG) was extended until March 2021, and an Affordable Rental Housing Complexes (ARHC) scheme was launched for migrants and the urban poor. The government also relaxed income tax rules to allow the sale of housing units of up to Rs.2 crore at a price that could be 20% below the circle rate instead of the previous rule of 10%.
However, these positive steps had limited impact as housing sales fell 54% in the first nine months of 2020 compared with the previous year as per Proptiger.com’s Real Insight report. However, from October onwards, buyers returned to the market, and sales started to improve on the back of pent-up demand and the seasonal upswing normally seen during the festival period. This limited revival in housing demand was also driven by stable property prices, low home loan interest rates, and discounts offered by real estate developers. The Maharashtra government’s decision to cut stamp duty to register properties also came as a significant relief for developers. As a result, sales jumped in Mumbai between October and December, surpassing the numbers from 2019. Nevertheless, housing sales are likely to be lower by around 50% this calendar year. The situation could have been worse had the Maharashtra government not decided to reduce stamp duty.
Other segments within real estate such as offices, malls, warehousing and co-working too were severely affected by the pandemic. In the midst of this grim tale, some favorable trends have emerged that would go a long way in bringing much-needed transparency to the real estate sector. One such positive trend is that the pandemic has compelled everyone from developers to brokers to buyers to use digital tools and technology in innovative ways. Furthermore, the pandemic has reinforced the importance of home ownership, which is a remarkable shift in this era of Uber and the shared economy. The demand for larger homes has also emerged as a trend post the advent of the COVID-19 pandemic.
With the vaccine being available in many countries, including India, the real estate market is expected to bounce back in 2021 to at least 2019 levels, if not higher. However, one needs to be cautiously optimistic, given that a lot of uncertainty still remains with the COVID-19 pandemic still raging in countries like the US and the UK.
(By Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com)