Will The Coronavirus Pandemic Increase Property Prices, Project Delays In India?

While experts around the world are busy estimating the extraordinary human loss the world would suffer, on account of the Coronavirus outbreak, a consensus has already been reached upon the rippling adverse effect of the deadly virus outspread on the world economy. The global GDP may suffer losses of up to 0.2% on account of COVID-19. Even though the effect in India is limited, so far, our economy, which has already seen a 26-quarter low growth of 4.5% in July-September FY20, may not remain unaffected in the event of a global economic slowdown. The Indian residential realty market is another story altogether.

Impact of COVID-19 on India’s property markets

PropTiger.com data show that housing sales in India’s nine major residential markets fell in the January-March period in 2020, showing a quarterly decline for the sixth time in a row. A similar trend is seen in terms of new project launches. Starting Q3 FY19, project launches have been continuously declining in these mega markets, falling by 51% annually in the January-March period.

Despite several government schemes to make purchases more lucrative, home loan interest rates coming down to an all-time low and tax rebates on property purchase at an all-time high, consumers continue to shun property investments. Housing loans are available for as low as 7.70% interest. Rates are likely to fall further as the RBI has reduced the repo rate to 4%.  Buyers can claim Rs 3.50 lakh rebate on home loan interest payment in a year.

Numbers, indicate that homebuyers have remained impervious to these monetary benefits, despite stakeholders trying every trick in the book to make them leave the fence. For instance, the government’s move to reduce the goods and services tax (GST) to 1% on affordable properties has failed to make a difference in buyer sentiment. Typically, home sales in India witness an increase during the festive season between October and December, which did not happen in 2019. The Coronavirus outbreak could not have occurred at a worse time, as far as India’s residential property market is concerned. Worldwide, the virus has infected nearly three-and-a-half million people as on June 10, 2020. These numbers are increasing day by day and raising more fear.

Property site visits are set to fall tremendously

If low interest rates and corrected prices encouraged some consumers in doing research for their future property purchase, the Coronavirus outbreak is going to discourage them from doing that now. India is confirmed to have nearly 2.70 lakh infections as on June 10, 2020. An active social media has made citizens acutely conscious of the COVID-19 and every effort is being made to stay indoors and avoid human interaction as long as possible — India initially imposed a 21-day lockdown from March 25. The lockdown was subsequently extended till June 7, keeping in mind the rise in infections. In such a situation, site visits for property purchases would certainly be the last thing on a person’s to-do list right now.

“Real estate is in that situation, where the homebuyer was gradually returning, but COVID-19 has been a speed-breaker of sorts. The slowdown since end-February is apparent; and while site visits are marginally down, the decision-making process is hugely delayed,” says Niranjan Hiranandani, national president of developers’ body NAREDCO. 

"Housing sales may see a sharp dip for at least the next one quarter as consumers' biggest priority currently is health/ safety and income preservation. Even if the situation settles down quickly, it may take time for homebuyers to come back to the market," says Anurag Mathur, Chief Executive Officer, Savills India. 

Project delays are set to increase

With no movement of construction work for nearly one-and-a-half months now, further delays in project execution are expected.  "With construction already coming to a grinding halt, project completions are slated to be postponed and if this situation prolongs, the deployment of funds including the alternative investment fund, will remain on hold," says Mathur.

In fact, keeping the long lockdown in mind, the real estate authority in Maharashtra has announced a nine-month extension on project completion deadlines, a move that is being replicated by real estate authorities in other states, after the Centre announced that builders should be provided relief under the force majeure clause of the real estate law.

Lauding the goverment move, Niranjan Hiranandani, national president of NAREDCO, said authorities should be mindful of the fact that normalcy might only return gradually and further relaxations could be offered, factoring-in future complications.  

“While these announcements take care of the immediate time frame and deadlines, the real estate industry hopes that any further delay, as a result of the pandemic will also be taken into account and similar action will be initiated by Maharashtra RERA,” Hiranandani said.

However, this is not all. Indian developers depend largely on China, where the outbreak started in December 2019, for sourcing construction materials and home furnishing supplies, ranging from plastic and electronic products to steel materials and building equipment. Search for alternative sources to procure these materials, as China tries to contain its own outbreak, will result in both, delays and cost over-runs in ongoing housing projects. Buying these materials from alternatives sources would shoot up the cost for India’s slowdown-hit developers, putting further stress on an already stressed segment. As expected, builders would be forced to pass on the burden to buyers.

If the various government-led measures were going to make some positive changes after all, the Coronavirus outbreak is potentially capable of undoing those, at least in the near future.