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May 22, 2020

Understanding COVID-19’s Impact on the Real Estate Sector

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As the effects of COVID-19 are felt in every corner of the world, it has turned industries, trades, and the worldwide economy into disorder. The global real estate sector has been impacted in contrasting ways, and so is the Indian real estate sector. The impact of the crisis has added quantum of a collision on already existing turbulences of introduced reforms on companies with top builders in Mumbai who must face the determining highs and lows.

Status Pre- COVID-19

Being a challenging market, the real estate sector has always managed to find ways to evolve even with a disrupted structure and taking under their wing multiple reforms such as demonetization, RERA, GST, IBC (The Insolvency and Bankruptcy Code) and subvention scheme ban. The COVID 19 implied lockdown has stopped the real estate sector to its utmost core.

Impacts on Residential Sector

The Indian residential sector has been withdrawn and ever since then, developers have been changing dynamics by focussing on execution, reducing unit sizes, and developing affordable housing projects.

  • Project delays – Given the lockdown, construction sites have been stopped and have come to a complete standstill across the country due to which project deliveries will get deferred. Developers would be unable to begin construction in haste as most of the laborers have left. Delay in construction, absence of labor, and lack of material will result in a weighted decline of project completion.
  • Hold on New Projects – Annually, new project launches in 2018 were 33% and only 21% in 2019. There is likely a massive disruption to be caused due to construction delays and financing issues. As nearly 4.7 lakh projects were to be completed in 2020 which are completely kept on hold.
  • Sales Drop: The real estate sector already saw a decline in sales with the rise of structural reforms and with the COVID 19 outbreak it will significantly drop.

Impacts on Commercial sector

Unlike the residential sector, Indian commercial real estate attained a peak in 2019 with rising IT and ITeS companies. Before the COVID 19 fallout, the commercial sector saw a growth of 19% from 2018 to 2019.

  • Delayed continuity – Due to delayed completion of commercial buildings it will significantly result in a continuity of business functionality at home based on technological modes of working.  
  • Decrease in Demand – Amidst the pandemic and having a global health crisis, the demand for office space will eventually drop as occupiers may not be able to work until the situation is resolved.

Impacts on Retail sector

Apart from the residential and commercial sectors, the Indian retail sector was already at the bottom with vacant spaces and unsuccessful malls.

  • Low Consumer Spends – Retail business is highly dependent on consumer spending, as the nation is sealed consumer spending is likely to take a blow of COVID-19. Irrespective of lockdowns and social distancing, the overall economic disruption, and employment uncertainty are likely to have an impact on consumer spending.
  • Public Space – Malls are to be considered as a place of high public gathering. Evidently, in the protocol of social distancing, even if the lockdown lifts malls will be restricted to function and may continue in low lease.

Employment Sector

Indian real estate is the second-largest breadwinning employment sector for workers and laborers who come in search of work. As most of the workers are immigrants, there has currently been a shortage as they went back when the COVID-19 broke out. Soon as the lockdown may lift, a few may return to project sites. But until then construction activities can function effortlessly it will be delayed as COVID-19 has affected many developers and contractors who will face a liquidity crisis causing a descending effect on the employment sector.

Measures Post – COVID-19

Innovation and change are what to be braced at such times with total understanding and compliance, which has led to certain factorial changes in order to deal with the pandemic.

  • Operating normality – At times of recovery from a crisis, most global companies have thought after recovery plans, that if ever the company is hit by an outer source, they are planned for not being jeopardized in terms of functionality. But in the Indian market, plans are carried out as far as curfews. In situations like COVID-19 such plans are easily mitigated by global companies and so do Indian companies who must be prepared with such prior operational plans.
  • Digital Presence – Companies who have adapted to artificial intelligence (AI) and virtual reality (VR) as modes of marketing their projects with live tours and visits are likely for the best to be used later. Real estate companies have immensely undertaken such practices and have percolated some operativeness.
  • Required Management – Real estate developments have to reconsider their functioning assets in order to be prepared for any such crisis in the future. In order to be able and ready for situations, safety and availability will be of critical importance and effective focus on risk management, regulation, and profitability.
  • Liquidity Flow – The real estate market has been impacted by several reforms earlier but in these times, the most impacted area is cash-flow management. The national government and central banks have proposed a low repo rate of 4.4% and the reverse repo rate at 4%, the Cash Reserve Ratio has been reduced to 1%, and Reserve Bank has allowed a temporary suspension of 3 months to all term loans which may help infuse liquidity in the sector.

It can be reckoned that the impacts are heavier and these are tough times. But, by understanding the overall impact of COVID-19 on the real estate sector, one must gain trust and securement through supporting this lockdown is what we believe as Suraj Estate Developers who have such safe and secure flats in Mahim and apartments in Dadar, which is now a residence to many families.

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