Residential Real Estate: 7 notable trends that may emerge amid the COVID-19 crisis

By: |
April 15, 2020 1:20 PM

The unprecedented crisis put across by the COVID-19 outbreak has impacted the residential real estate significantly. Here are a few notable trends that are likely to emerge amidst the current situation.

real estate, real estate in India, impact of Covid-19 on real estate, impact of Covid-19 on residential real estate, residential real estate, Demo, RERA, Amidst the current COVID-19 outbreak, major disruptions are likely due to construction delays and financing issues.

The unprecedented crisis put across by the COVID-19 outbreak has impacted the residential real estate significantly. The sector had already been grappling with subdued demand and liquidity crisis for a long period, and the pandemic has led to a screeching halt of new developments and pushed the probable recovery further away by a few years.

Keeping this in view, here are a few notable trends that are likely to emerge amidst the current COVID-19 situation:

1. Construction delays

As per ANAROCK Research, more than 15.62 lakh units launched between 2013 and 2019 across the top 7 cities of India are in various stages of construction. Of this, MMR and NCR together comprise of 57% or about 8.9 lakh units. With India being locked down until May 3, 2020 (as per the current advisory), there will be massive disruptions in the construction material supply even after the lockdown ends, leading to disturbances and delay in the construction activity.

“In our opinion, construction delays might run up to several months for well-funded projects, while for others, the delays may even be to the tune of a couple of years. Being declared a national disaster, even RERA will be ineffective in getting homebuyers to recover any penalties. Thus, they will have to brace for construction delays,” says Prashant Thakur, Director and Head-Research, ANAROCK Property Consultants.

2. Decline in new launches

The new launches across the top 7 cities of India began recovering gradually since 2017 as the dust of structural changes and policy reforms settled down. However, owing to liquidity crisis, the pace of new launch growth declined
gradually. On annual basis, new launches grew by 33% in 2018 over the previous year and in 2019 growth seen was only 21%.

Amidst the current COVID-19 outbreak, major disruptions are likely due to construction delays and financing issues. Moreover, this time around the festive season and the summer vacation period, which is the most opportune for new launches, may take a beating. As is, the third quarter of any calendar year is slow for new launches due to the ongoing monsoons and ‘shraad’ period. In this backdrop, in 2020, new launches are likely to register an annual decline to the tune of 25%-30%.

3. Sales slowdown

Sales across the top 7 cities of India remained muted in 2017 due to DeMo and other structural reforms. In 2018, sales improved by 18% over the previous year with RERA being in place and fence-sitters starting to come back to the market. However, the euphoria was short-lived and amidst the liquidity crisis and an overall gloom in the economy in 2019, sales improved only 9% over the previous year.

“Considering that residential real estate sales are highly dependent on physical site visits, interactions, discussions and physical documentation, we believe that sales in 2020 might be significantly hit due to the current COVID-19 outbreak in India. Many homebuyers will consider postponing their decisions either to stay away from the project sites or in the expectations of a price correction. In 2020, thus, residential real estate sales are likely to register an annual decline of around 25%-35%,” says Thakur.

4. Unsold inventory to remain stable

Amidst restricted supply and marginally improving demand, unsold inventory across the top 7 cities of India has been declining during the past few years. In 2018, the annual decline in unsold inventory was 7% while it declined by 4% in 2019. With new launches coming to a screeching halt at least for the next few months until we see COVID-19 containment in the country, homebuyers may spring into action during the second half and select from the existing unsold inventory from projects across various stages of construction. Unsold inventory is likely to remain largely stable in 2020 with a single digit annual decline of around 1%-3%.

5. Affordable housing segment tested

Nearly 40% of new launches added across the top 7 cities of India during the past few years have come in the affordable housing segment (units priced < Rs 40 lakh). The government’s strong push on ‘Housing for All’ mission and extension of several sops to the homebuyer and developer of this segment led to a wave of affordable housing developments. Also, land being a scarce resource in the core parts of many cities, new developments began to emerge in the affordable peripheral destinations.

“Amidst the current COVID-19 outbreak, we believe that the most affected segment of the working population is the target group for affordable housing developments. These homebuyers with limited income and lack of work from home facilities may have to face loss of pay or even jobs and may reconsider their purchase decisions. With affordable housing units accounting for around 36% of the overall unsold inventory across the top 7 cities as of Q1 2020, this segment was already being tested and the current pandemic outbreak has further worsened the situation. In our opinion, the unsold inventory in the affordable housing segment will register an annual increase of 1%-2%,” informs Thakur.

6. Massive consolidation

The Indian real estate sector has been consolidating for the past few years. With the onset of RERA, financially weak players found it difficult to adhere to compliance norms and were either going out of business or consolidating with larger players. The liquidity crisis further worsened the situation and a new wave of consolidation was kicked off. Survival of the fittest and financially strongest is the new norm in Indian real estate and we have witnessed a rise in the share of new launches by branded players. As per our research, the share of tier I developers in 2018 new launches was around 56% as compared to 41% in 2015. In 2019, this share increased as liquidity crisis hit the weaker players significantly.

This consolidation phase is likely to continue amidst the current COVID-19 outbreak and as we emerge from this pandemic, many weak players may cease to exist.

7. Consumer sentiments to dip further

Indian residential real estate has been grappling with subdued demand and low consumer sentiment for more than 3 years now. Structural changes and policy reforms including DeMo, RERA, GST, and IBC imbibed some confidence and consumers began to relook at this asset class. However, markets transformed to be enduser driven with sales dependent on buyers looking for self-use.

Amidst the current COVID-19 outbreak, consumer sentiments have been severely shattered not only due to the possibility of construction delays and decline in new launches, but also due to rising uncertainty on the overall economic growth. This is also visible in the stock market indices as fear of pandemic grapples the institutional and retail investors alike.

“In our opinion, 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,” observes Thakur.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Government hikes dearness allowance (DA) by 3% for central employees
2Digital Lending: A bridge towards financial inclusion
3Sensex down by over 1000 points from highs! Find out what suits now – SIP, STP or Lumpsum?