Coronavirus outbreak to dampen housing demand, break growth momentum of office space

By: |
April 10, 2020 3:04 PM

While the short-term effects are going to further add to the woes of the real estate sector, the macro-economic factors have also been severely impacted due to COVID-19.

real estate, real estate in India, Covid-19, coronavirus, housing sales, commercial segment, Current estimates reveal a substantial drop in demand and supply across various real estate segments in 2020.

The Coronavirus outbreak has not only infected lakhs of people globally, but has also disrupted industries, trade and business cycles, halting global economic activity significantly. The real estate sector in India — which has already been reeling from the adverse impact of liquidity crunch, high inventory overhang, weak affordability and subdued demand conditions — is one such sector whose woes are likely to worsen owing to the outbreak of this pandemic.

According to an ANAROCK study, in usual times, the ongoing period normally sees an uptick in residential real estate activities owing to festivals like Ugadi, Gudi Padwa, Akshaya Tritiya and Navaratri when new launches and housing sales spike up. The upcoming vacation time for Indian schools beginning April till June-end also gives time to homebuyers to make purchase decisions.

“Unfortunately, 2020 seems to be different. Country-wide lockdown until mid-April has halted all activities. As evident, project sites are shut, site visits have stopped, and construction activity has come to a grinding halt, eventually impacting housing sales. Also, developers have deferred their new project launches for an unknown period. Besides residential segment, commercial real estate is also not immune to the Covid-19 fallout. Corporate occupiers are seen delaying their leasing decisions and still several MNCs and businesses are testing new waters of the work-from-home option. If proved successful, it could impact leasing activities in the future,” says Anuj Puri, Chairman, ANAROCK Property Consultants.

Current estimates reveal a substantial drop in demand and supply across various real estate segments in 2020. Housing sales, for instance, could witness a 25-35% yearly drop in 2020 against the preceding year. Residential sales in 2019 stood at approx. 2.61 lakh units across top 7 cities and may now fall between 1.70 lakh and 1.96 lakh units. Likewise, new launches may also witness a 25-30% decline during the same period – from 2.37 lakh units in 2019 to anywhere between 1.66 lakh and 1.78 lakh units.

Unsold inventory in 2020 will largely remain stable, with single-digit annual decline of around 1-3%. The nationwide lockdown has completely halted construction activity – project delays could run into several months for well-funded projects, and a couple of years for others. Nearly 4.66 lakh units across the top 7 cities, earlier slated for completion in 2020, now face a high risk of delays.

“The affordable housing segment, which gained significant traction over the last few years, may also take a hit by COVID-19. The outbreak will significantly affect affordable housing’s target audience. With limited income and unemployment fears, buyers of affordable housing may defer purchase decisions, leading to an estimated 1-2% rise in unsold stock within this segment in 2020,” informs Puri.

Nimish Gupta, MD, RICS South Asia, agrees. “Globally, no industry or market has remained shielded from the ill macro-economic and social effects of the coronavirus outbreak. Nationally, the situation remains uncertain and the real estate sector too is in a flux. Currently, India is under complete lockdown till 14th April 2020. We are aware that India has more than 5000 active cases as of today. With new additions to this figure happening every day, the immediate future looks very uncertain,” he says.

Most of the sales & marketing efforts in organizations are already being affected with companies issuing directives to employees for ‘no face to face meetings’ and ‘no visitors’ policy. This has also started impacting construction activities as well. As there are no general hygiene and sanitary facilities available on-site and the virus requires a lot of precautionary measures for avoidance, the scale of construction has come down.

While the short-term effects are going to further add to the woes of the real estate sector, the macro-economic factors have also been severely impacted due to COVID-19. “Capital investment in residential is likely to slow down as a reaction to this uncertainty as investors/buyers will look at protecting the cash flow. Tourism & travel restrictions will also lead to the hospitality and commercial real estate sector bearing the brunt of the outbreak. The only opportunity this unfortunate turn of events poses is in terms of technology-based approach. There should now be a natural shift towards digital platforms generally,” suggests Gupta.

Honeyy Katiyal, Founder of Investors Clinic, says, “There is skepticism amongst developers around the launch of new projects. With critical impact on global economy and share market, Indian real estate will witness the cycling impact of coronavirus too. Disturbances in the economic cycle will impact the demand in residential and commercial real estate also.”

However, the current crisis in real estate also provides some opportunity to buyers and investors alike. From the consumer perspective, for instance, gold is at its record high and the stock market is crashing since the announcement of coronavirus as a global pandemic.

“This creates opportunity for consumers to make shift in investment. Real estate can be one sector which can still create an alternate sound investment opportunity for people. Every cloud has a silver lining. We are hopeful that with joint efforts from the government and our own people, India will be able to control the pandemic situation and soon be out of the economic crisis,” adds Katiyal.

Some realty experts, however, think that consumer sentiments are likely to remain weak for the rest of the year 2020 unless India can contain the coronavirus within the stipulated lockdown period and also there is some amount of sector-specific economic revival package announced by the government.

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