The second wave of COVID-19 that struck in March 2021 has disrupted any progress that the realty sector had seen in the last one year. Today, the industry is yet again looking at a bleak number of sales and new launches. Experts say the revival of the sector now stands delayed by another 6-9 months.
After a challenging one year post the onset of COVID-19 in India, the realty sector has found itself facing another round of hurdles – this time again in the form of COVID-19, but a variant that is more lethal than the one witnessed before. The immediate impact of the outbreak can be inevitably noted as site visits, and new property sales have yet again come to a grinding halt. Cities like Mumbai, Delhi NCR and Bangalore are the worst hit due to a rapid surge in cases and the state of panic on the back of crumbling health infrastructure. As per experts, property sales in all these three cities in the month of March and April 2021 have declined by over 50 percent in comparison to the previous year.
In an exclusive interaction with 99acres.com, Nakul Himatsingka, MD, Ideal Group, talks about the impact of the second wave of COVID-19 outbreak on property sales and new launches in the Indian real estate sector.
Acknowledging the massive impact on housing sales, Harvinder Singh Sikka, MD, Sikka Group, says, "Although the real estate sector was well on its path to recovery, the recent rise in cases, renewed restrictions and pace of vaccination drive have all contributed to the decline in housing sales. It is natural as people are not moving out and a majority of homebuyers still prefer buying properties after a physical visit. We hope that as the vaccination drive progresses, the residential sales would also recover. However, the recovery cycle might get deferred by another six months or so."
New launches, too, have taken a hit as developers, who were yet to completely recover from the losses borne in the previous cycle, find themselves embroiled in another set of challenges. The year 2020 witnessed a launch of 1.22 lakh units, against 2.44 lakh units in 2019, a substantial decline of about fifty percent. This time, although the industry looks more prepared, the challenge of retaining migrant workforces and conducting only in-situ construction has not only affected the pace of work but also hindered transactions.
The second wave of COVID has resulted in stringent restrictions, such as the closure of corporate offices, sectoral curfews and imposition of Section 144 (limits the meeting at public places). This has discouraged the real estate developers from launching projects that were planned for this quarter and hence, have deferred them for the next quarter.
While the market statistics state otherwise, there are a few established builders who feel that they are better prepared this time, and the second wave of COVID has not impacted their functioning significantly.
Terming the slowdown in new launches an ongoing phenomenon, Niranjan Hiranandani, National President, NAREDCO, says, "New project launches are happening at a pace that mirrors the impact of the pandemic on the economy, this is an ongoing process since 2020, and one sees no direct impact of the second wave. Large sized real estate development companies tend to be corporates, so smaller companies face challenges which non-corporate business organisations generally do, and this aspect is mirrored in the real estate sector as well. Other than that, real estate has not been impacted much by the second wave since we were already in 'work from remote location' mode and construction with enhanced automation is proceeding as per schedule with safety and security at project sites."
Reiterating Hiranandani, Rishi Jain, Managing Director, Jain Group, opines, "Yes, the physical site visits have declined by almost one third on average, despite taking all COVID-19 mandated protocols. The good news is that the market is better equipped to deal with the situation and rise of 'Digital Site Visits' have ensured that larger customer base is available. Customers are seeing and indeed buying from the comfort of their homes during these times. In the second wave, the small players are more affected because of their limited emergency bandwidth. Players with legacy and brand support have managed to better utilise their resources and also accelerate construction activities.”
How will new project launches suffer?
It is not as if the new project launches were totally halted during 2020. According to the Pan India Insite report Jan-Mar 2021, around 600 new projects were launched during Q1 2021 across the top eight cities, which is over 50 percent higher than the projects launched in the previous quarter, i.e. Q4 2020, across the top eight cities of India.
However, there are fewer chances that the positive sentiment due to increased project launches will trickle down to the ensuing quarters as the rate of infection in India is yet to reach its peak, and the coming months can be severely challenging. Moreover, the uncertainties compounded by the resurgence of Coronavirus has reinitiated the mass exodus of migrant construction workers.
Despite this, a survey by Knight Frank-FICCI-NAREDCO reveals that the residential project launches would go up in the coming months, and sales activity would pick up.
Why are there fewer inquiries for residential and commercial properties?
The risk-averse salaried class was enthusiastic after a revival was in sight in the last quarter of FY 2021; however, with cases rising at an alarming rate, this buyer group will again be in the cautious mode, and the home-buying decisions might get deferred further. According to a recent report by research and rating firm ICRA, owing to the job losses and resultant defaults, Gross Non-Performing Assets (GNPAs) will remain at elevated levels in FY 2022.
However, the cautious stance in the hope of prices getting slashed further can be dicey. Sharing her thoughts on the price issues, Akshita Gupta, Co-founder and CEO, ABL Workspaces, says," As the impact of second wave of COVID-19 is increasing, developers will look at maintaining a continuous flow of cash overlooking at making profits. Post COVID-19, the impact on pricing will be different, based on the market and type of projects. The highest impact will be seen in the luxury segment, as discretionary spending will reduce. Prime locations in metro cities offering luxury options will see a price drop. However, affordable real estate will only recover, once the economy stabilises."
In addition to this, the commercial real estate sector and the office spaces industry is also reeling under pressure as work from home has become a norm, and companies are cutting costs by reducing the leased spaces. According to JLL, the office space absorption reduced by 40 percent in 2020 as compared to the year 2019.
Acknowledging the current challenges in the commercial sector, Riaz Maniyar, Co-founder, Yield Asset Real Estate Tech, says, "After the second wave of pandemic, demand will be subdued for at least six months. Developers in commercial realty will focus on Built-to-suit (BTS) model for their clients. As tenants look to consolidate cost and office footprint reduction, offices will adopt the hub and spoke model with seamless integration, which will bring Tier-2 cities into limelight. The space requirement per person will increase significantly, which is a silver lining for existing supply of office space. There may be slight slow absorption for some more time, at least till the vaccination drive is completed for large portion of India's population."
Why are there fewer property listings and reduced site visits?
The second wave has necessitated the practice of existing social distancing norms more diligently. While physical visits were already hampered by the restrictions on the movement, the second wave will limit it even more. Similarly, the property listings and their verifications are facing challenges due to curbs on physical activities. However, this has increased the share of digital site visits, and preference for the digital mode or virtual site visits is at an all-time high. However, Indian consumers are still far behind from sealing housing deals remotely.
Acknowledging the reduction in site visits and acceptance of digital project launches, Sanjeev Chandiramani, Chief Operating Officer, Ruparel Realty, says, "The year gone-by truly showcased the potential of the real estate sector when it comes to surviving downturns. Developers were ready to launch their projects as it was the peak season for the residential segment. However, the second wave of the pandemic caused a lockdown due to which developers could not launch their projects on time. Even though the sector has taken the digital leap, in India, we are not graduated to the level where we can get the booking on a virtual experience and convert them into sales. There is a 90 percent to 95 percent drop in site visits, and property prices have hit rock bottom."
The recently released 'Real Estate Sentiment Index Q1 2021' by Knight Frank sums up the near future sentiment. According to the index, 'Future Sentiment Score' for Indian real estate has dropped from 65 in Q4 2020 to 57 in Q1 2021, reflecting a cautious stance of investors towards the real estate sector.
Buyers, brokers and real estate developers are taking no chances with the second wave of the COVID-19 pandemic and are taking strict precautions to maintain overall health while struggling to maintain robust real estate traction. While the market may take another 6-9 months to recoup, the recovery is inevitable, given the resilience of Indian real estate in the face of adversity.