Will Coronavirus Pandemic Have Catastrophic Effect On Real Estate?

Covid19 Impacting RealEstate
Covid19 Impacting RealEstate

With the outbreak of the coronavirus pandemic, normal lives across the globe have come to a halt. Although the pandemic is impacting every segment and industry, the effects on the real estate segment can prove to be catastrophic if it persists for a few more months.

The coronavirus pandemic was being underestimated by several real estate experts until a few weeks ago. It was said that the pandemic will have minimal impact and that too on luxury housing. Affordable and mid-segment housing as well as commercial real estate was said to remain unaffected from the pandemic.

However, as the number of cases continues to skyrocket, Indian government is taking aggressive steps. Lockdown has been imposed in many states as the cases are expected to rise in the coming weeks. In fact, experts are now declaring that the coronavirus pandemic is the fourth biggest disruptor to have affected the real estate segment since 2016 after demonetization, GST implementation and NBFC fund crisis.

Here is how coronavirus is going to affect Indian real estate segment in multi-dimensional way:

  • Social distancing: Amid the lockdowns and social distancing, property exhibitions project launch events and similar functions are cancelled. Home buyer footfall at the project site has fallen drastically in the largest markets of NCR, MMR, Bengaluru and Pune.

With residential real estate typically being a “touch and feel” high ticket purchase, the fall in project site visits will lead to steep fall in the number of sales in the coming weeks.

  • Lockdown: As the lockdown is announced in 75 districts across India, construction activities are suspended with immediate effect. If the lockdown period gets prolonged due to further spread, the suspension on construction activities are definitely going to delay several under-construction projects.
  • Supply-Chain: COVID-19 has led to supply chain disruption on a global scale. The disruption will lead to scarcity of imported items such as glass, marble, MEP (mechanical, electrical and plumbing) works and other finishes that may further delay the construction process.
  • Drop In Sales: Falling sales will spill into lower collections. Developers will soon start feeling the heat of crunch of funds which will lead to drop in the construction activities if and when the ban is lifted.
  • Rise In Litigation: Since there has been no notifications from RERA or the Supreme Court in case of delays in the delivery of projects,  more delays will lead to further litigation and distrust among the buyers.
  • Economic Slowdown: If coronavirus pandemic prolongs, many sectors are expected to witness massive job losses which in turn lead to an overall economic slowdown in India. Potential buyers will hold back new purchases and the homeowners might delay their EMI payments in ongoing projects.
  • Office Space: Co-working players facing a dilemma of a never-seen-before kind. Many SMEs and startups have gone on complete work from home mode and are demanding cancellations and refunds. Immediate lockdown in Mumbai, Delhi and Noida has ruled out the need for a workplace as a result of which many coworking occupiers have requested for more flexibility in their membership agreements,”  a co-working operator told Money Control.

On a global level, many occupiers of co-working arrangements, especially where effects of COVID-19 are more pronounced, have asked for complete cancellations and refunds.

  • Travel Restrictions: Widespread domestic and international travel restrictions will impact the absorption of office spaces. In 2020, as much as 54.3 million sq feet of gross absorption of commercial office space take is expected. Although  there may not be a major impact on office demand due to coronavirus, decisions over commercial space take-up are expected to be delayed or postponed owing to travel restrictions. Read more on impact of the pandemic on commercial real estate.

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