Real Estate Investment amidst covid & its impact

 

Covid 19 has altered all aspects of our life and Real Estate investment is one of the most affected area. There have been multiple ways in which the transactions in property market are affected. Some of these have been negative while some others are positive for Real Estate investment’s future.

The impact of Coronavirus on the Indian real estate sector was stifling to the point that it brought property transactions to a near-halt last year when the nation went into a complete lockdown between March and June 2020. Afterwards the market showed some growth trends, but the second wave that hit us in April-May, 2021, reduced the property transactions to almost nil. But once again from mid-June as different states started reducing the Covid restrictions and vaccination drive gained momentum, a significant jump in Real Estate investments is observed. 

It helps to understand the way different factors have affected the Real Estate investing in last one year. The construction activities were halted and there was a country-wide exodus of labour in distress. While some of these labourers had started coming back, the second wave created a fear of life and a large percentage of them decided to stay back owing to various circumstances. All this was so sudden that the sector was caught completely unprepared and clueless on how to respond. 

However, this complete lockdown also resulted in developers, especially in the residential real estate, looking out for alternative means to reach the customers. This made virtual site visits and use of technology to follow up, the new norm. This is decreasing the customer response time and more efficient communications. It is expected that this trend will continue even beyond the pandemic and will also help faster decision making by NRI customers. It is no secret that NRI investments in Indian RE sector has provided good liquidity in the system. 

One more thing, that is hugely positive for organised residential property developers is the health awareness among general population. This has created an urgency in people living in congested and unplanned developments to seek properties in well planned and spacious properties. The importance of good sanitation and health care facilities is not lost on anyone. The demand for modern townships which can create the complete ecosystem for a family within its perimeter or a housing society in close proximity of good health care facilities is tremendous and is expected to drive up the prices in such properties. 

Another factor, which is affecting the interest in good condominium is related to changing work habits. The impact of Coronavirus forced companies to adopt work-from-home for their workforce. This immediately needed an area in every home that could be used as a work area, free of disturbances. Most of the houses were earlier bought on the basis of basic minimum requirement basis. But with WFH, most people are looking to buy homes with an extra space that could be used for office work. But all this is expected to play out over next couple of years. 

In short term, Covid 19 has played havoc with the industry. According to a report by KPMG, the pandemic resulted in a serious liquidity crunch for the realestate developers. The credit shortage brought down the residential sales from four lakh units in 2019-20 to 2.8 lakh units in 2020-21 across the top cities of India. 

If a report by India Ratings (Ind-Ra) is taken into account, the overall residential demand declined by over 40 percent in H1 of FY21. The agency believes that the sales will remain hampered until the COVID-19 situation is controlled effectively. And that shows another silver lining. 

The Indian vaccination drive has been unprecedented and quickest in the world. With more than 30 crores vaccinations done, India is moving aggressively to ensure that its working population is inoculated. This is resulting in more and more cities opening back to normalcy and the impact is seen in Real Estate sector. While commercial real estate is expected to continue to face head-winds for some more time, the residential real estate is expected to be supported by huge tail-winds. 

With various lock-downs, the new projects could not be planned and launched. This has resulted in reducing the inventory, a major reason that has contributed to continued suppressed prices. With the cost of raw materials like cement and iron going up significantly in the short term, owing to economic revival across the world, the cost of construction for a new property has increased substantially. This is allowing the developers with properties in advanced stage of construction to keep prices lower comparatively and bring in liquidity through quick sales. Various incentives in different states have also encouraged buyers to take positions and with historically lowest interest rates on housing loans, the deal has become sweeter.  

Another factor which is helping Real Estate sector is an increased liquidity across the world. The incentives given across the globe has made cheap money available which is looking out for the best deals. With stock markets and gold already having its run of giving almost 100% returns in last one year, this liquidity is steadily moving to the property markets of developing countries. India stands to gain the most from it due to high expected GDP growth in next few years and a stable and well-regulated market. 

The future prospects, therefore, for the Indian Real Estate market look very good. The challenges of Covid has created situations, where weaker players are quickly going out of the market. This will also bring in more transparency and honesty in the sector as established and organised players like to work in the defined framework. Salaried class has also been spending lesser money during this period, leaving them with higher disposable income. 

Real Estate sector, that faced high challenges pre-Covid and during Covid is expected to emerge in a fast growth future. An investment in property at this time should reap rich dividends, provided the country doesn’t face another lethal wave of Covid 19. With high vaccination rate and governments stressing on Covid appropriate behaviour, one should be very hopeful about multiplying the value of investments in property.

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