Understanding Direct and Indirect effects of Covid-19 on real estate
The real estate sector has been badly affected by the COVID-19 pandemic in so many ways and if we focus on the financial side, the impacts are already visible and threatening.
A lot of people are connected to the real estate community in many ways. Buyers, sellers, agents, developers, real estate management firms etc. All are facing the side effects of COVID-19 in one way or another.
Let’s see how it is affecting everyone’s life:
Impact on investors:
If we talk about the value of the property be it commercial or residential, both have fallen more than 30% or more in most sectors like hospitality or leisure. Student housing, malls and healthcare facilities are impacted badly and have already been sold of in considerable numbers.
Increased e-commerce is also a reason for the slow down as goods and human movement is restricted. The constructions have been delayed to a non-specific time.
So many human activities have been curtailed, and social distancing is a new norm.
In the Indian real estate market, the impact of Coronavirus was so stifling that property transactions came to a near halt last year when the country went into a complete lockdown between March and June 2020. Since then. the market has not risen. Just when it seemed the revival was not far, the country was again struck by yet another wave of the virus.
Experts say that recovery of the real estate will now prolong until 2022. From halted construction to delayed so many under-construction projects, the year 2020 was a watershed year in the history of economic downturns.
After a series of lockdowns and restrictions, the country is still fighting to find ground for the realty sector. In February 2021 it looked like the market will recover from this setback but the resurgence of Coronavirus in a more fatal form by March 2021 sparked fears far worse than the last year.
People in metro cities like Mumbai, Delhi NCR, Pune undergoing partial lockdowns and masses struggling for healthcare, the realty sector had another blow.
Most people are working from home so they don’t need to stay closer to their offices. That increased the number of vacated apartments at prime locations. The owners of the apartments had to face a double whammy, as the rental income loss plus paying for the maintenance charges for a vacated apartment.
Demand and supply, both remained largely hit during all this time. When it looked like the market has started recovering, the second wave happened and the surge in Covid-19 cases derailed real estate from recovering.
Therefore, people who invested in real estate for rental income and expected to earn from a surge in real estate prices are facing loss at both places.
Impact on Real estate developers:
The unprecedented scale of the impact of COVID-19 on Indian real estate can be gauged from the fact that the sector has incurred a loss of over Rs 1 lakh crore since the pandemic broke out (Source: KPMG). According to a report by KPMG, the pandemic resulted in a serious liquidity crunch for the real estate 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 seven cities of India.
If a report by India Ratings (Ind-Ra) is referred to, the overall residential demand declined by over 40 per cent in H1 of FY21. The agency believes that the sales will remain hampered until the COVID-19 situation is controlled effectively.
As is evident, research agencies are predicting a near-term halt in the growth of real estate in India. PropTiger.com data show housing sales in India’s eight major cities declined by 66% in the period between July-September 2020.
Impact on commercial real estate:
Work from home culture has also proved harmful for the growth of office space leasing companies. According to a report by Cushman and Wakefield, the net leasing of office spaces declined to around 35 lakh sq ft in Jan-Mar 2021 from approximately 70 lakh sq ft in the corresponding period of the year 2020.
Since Q4 closed on a positive note as the immunisation drive by the Government picked up the pace, the sudden spike in cases across the nation does not bode well for the recovery cycle, and the occupiers are expected to remain cautious in the coming months. Resultantly, the potential leasing transactions may get further delayed and impact leasing rates.
Impact on Nri Investments in real estate:
The main purpose of NRI investment in real estate in India has been for rental purposes. However, the uncertainty fueled by the pandemic has motivated the NRI community to own a home in India as well. According to research reports, NRI investments in FY 2021 stood at$13.3 billion. The demand will continue to rise as housing is a priority for NRIs for their aged parents or for their own retirement as well.
On the other hand, many NRIs are selling properties. The main reason for most NRIs selling their properties in these markets is to do with logistics, lower rental yield and rupee depreciation.
Now as everyone is waiting for the third wave of Corona Virus, with fingers crossed I pray to God to pass it smoothly and without much damage. Apart from people’s lives its severity impacts the livelihood of the masses.
All of us expect the markets to survive. The future is most uncertain than ever in the face of COVID-19. The only way forward is to educate ourselves as best we can and prepare for the likely possibilities.
None of the blogs or opinions expressed within is meant as advice to you or anybody else on any matter, including but not limited to, personal finance, health, or other matters of life. If you need advice, speak to a professional!