Possible Effect Of Covid 19 Crisis On Residential Real Estate

By Author: kamal prakash
Total Articles: 47
Comment this article

The unusual crisis brought on by the COVID-19 outbreak has significantly impacted residential real estate. Here are some notable trends that are likely to emerge amid the current situation. The sector had already been dealing with moderate demand and a liquidity crisis for a long period, and the pandemic has slowed down new developments and pushed the likely recovery further for some years.

With this in mind, here are some of the situation which can affect the residential real estate during this pandemic crisis:

1. Delay in the Construction Process

According to ANAROCK Research, over 15.62 lakh units launched between 2013 and 2019 in the top 7 cities in India are in various stages of construction. Of this, MMR and NCR together comprise 57% or approximately 8.9 lakh units. With the closure of India until May 3, 2020 (as per current notice), there will be massive disruptions in the supply of construction material even after the closure is complete, leading to disruptions and delays in construction activity.

In our opinion, delays in construction can last ...
... several months for well-funded projects, while for others, delays can be a few years. Being declared a national disaster, even RERA will be ineffective in getting buyers to recover penalties. Therefore, they will have to prepare for construction delays.

2. Decrease in New Project Launches

New launches in the top 7 cities in India began to gradually recover from 2017 as the dust of structural changes and political reforms settled. However, due to the liquidity crisis, the growth rate of the new launch decreased gradually. On an annual basis, new launches grew 33% in 2018 compared to the previous year and in 2019 the growth seen was only 21%.

Amid the current COVID-19 outbreak, there are likely to be major disruptions due to construction delays and financing problems. Also, this time during the festive season and the summer vacation period, which is the most opportune for new releases, you may take a beating. As it stands, the third quarter of any calendar year is slow for new releases due to ongoing monsoons. In this context, in 2020, new launches are likely to register an annual decrease of 25% to 30%.

3. Sales Depreciation

Sales in the top 7 cities in India were silent in 2017 due to DeMo and other structural reforms. In 2018, sales improved by 18% over the previous year with RERA in place and fence keepers began to return to the market. However, the euphoria was short-lived and amid the liquidity crisis and general sadness in the economy in 2019, sales improved only 9% from the previous year.

Given that residential property sales are highly dependent on physical visits, interactions, discussions, and physical documentation, we believe that sales in 2020 could be significantly affected by the current outbreak of COVID-19 in India. Many buyers will consider postponing their decisions either to stay away from project sites or in expectations of a price correction. In 2020, therefore, residential real estate sales are likely to record an annual decline in about 25% to 35%.

4. Affordable housing segment

Almost 40% of added new launches in the top 7 cities in India in recent years have reached the affordable housing segment (units priced