These are unprecedented times. It was impossible for anyone to predict that the COVID-19 pandemic is going to impact the world in such a disastrous manner by claiming lakhs of lives and affecting even more livelihoods. Needless to say, it has brought an already slowing global economy to a complete standstill.
The Indian housing sector is no exception with residential sales seeing a 42 percent YOY drop in Q1 of 2020, according to data published by a leading research firm. The coronavirus has impacted this sector massively, especially in the Mumbai Metropolitan Region (MMR).
While Maharashtra continues to report the highest number of COVID-19 positive cases in the country, yearly trends as per a leading research firm’s data, reveal that MMR has recorded the highest YOY drop in terms of housing supply by a whopping 61 percent. With the government taking a hard-line stance on implementing the nationwide COVID lockdown in March this year, this decline has been exasperated as sales and launches have come to a grinding halt.
The COVID-19 pandemic and eventual nationwide lockdown have also resulted in an immediate halt of all construction activities, both in the commercial and in the residential sector. This resulted in a disruption in the supply chain of vendors with construction labour migrating to their rural base. This will likely result in project delays, negative cash flows and decreased demand for construction finance in the future.
The state real estate regulator, Maharashtra Real Estate Regulatory Authority (MahaRERA) has also given a three-month extension to all registered projects whose completion date, revised completion date or extended completion date expires on or after March 15, 2020. Liabilities are expected to increase on the banks who will, in turn, increase the cost of finance. The RBI’s three-month moratorium on term loan instalments may provide some short term relief to the developers.
Even though developers across the country were able to sell nearly three percent of their unsold inventory with a marginal decline of just one percent on a quarterly basis, MMR recorded a significant decrease in the trimming of inventory by 42 percent.
Bookings of residential properties in MMR have declined by 78 percent due to COVID-19. MMR is considered to be the country’s most expensive property market. Despite that, customer walk-ins, and scheduled site visits have dropped by almost 80 percent. The situation is likely to get significantly worse if the lockdown is extended.
As per a CREDAI-MCHI report, home loan cancellations have witnessed a 200 percent rise in Q1 of 2020. Home loan collections fell by 250 percent in March 2020 as against January 2020. Existing tenants in the commercial segment are likely to delay or re-negotiate renewal of lease to Q3 2020 with demand for rent-free periods until the lockdown is lifted. Co-working spaces are the worst hit with a long term impact and a significant drop in short term leases.
Pre-commitments will form the basis of all the leasing contracts of commercial office spaces. Demand for office space is also going to be pushed out by a few quarters. Investments are expected to remain stable except for a few short term hiccups; by and large, there has been higher yields and stability in the Indian office market. The overall impact on assets is low; however, recovery is expected to be faster than other real estate assets.
The impact of COVID-19 is making the MMR experience an unprecedented slowdown in activities with enormous pressure on the residential sector, in terms of the on-going liquidity crunch, declining demand and skyrocketing prices.
The sector will bounce back, but currently, there is immense uncertainty around the timing and speed of returning to normal.
