COVID-19 ~ IMPACT ON THE REAL ESTATE SCENARIO

The Outbreak of Corona Virus has impacted more than 13 million people across the world, claiming more than 578,000 lives till July 15th and the numbers are still increasing rapidly every day. The pandemic has affected the overall economic growth of the country and the nationwide lockdown has resulted in a further slowdown of the real estate market.

The Residential real estate segment which was recovering from the after effects of the multiple reforms is now further impacted by the pandemic. In Q2 2020 a total of 11,967 new residential units were launched in tier I cities which is a reduction of 81% when compared to Q1 2020 and a 78% drop when compared to Q2 2019. Bengaluru, Thane and Pune continued to witness new launches during the quarter. Sales also witnessed a steep decline in Q2 2020. 20,653 units were absorbed during the quarter which was 67% lower than the sales in Q1 2020. Thane, Pune Bengaluru and Mumbai accounted for approx. 78% of the total absorption in Tier I cities during the quarter. Thane recorded a sales of approx. 6,000 units in Q2 2020.

A massive drop in new launches has resulted in a drop in inventory levels across the cities. The leading developers across the country have used digital platforms to market their existing inventories during the lockdown.

Developers have been offering flexible payment plans like 10-90, 20-80 subvention Schemes for the under construction projects, move in now and pay later schemes for the RTMI (ready to Move In) projects which allow the customer flexibility to book the apartments with a minimum initial investment. Developers in NCR are offering attractive schemes and negotiated prices in order to sell off their existing inventories. Furthermore, schemes like refund of the advance booking amount on registration within a month of booking are becoming popular in cities like Bengaluru. Apart from these, freebies like free car parks, waiver of clubhouse membership charges, PLC charges and floor rise charges etc. are also being offered by the developers in order to boost their sales velocity.

The complete lockdown and shortage of labor is likely to delay the completion of the projects by 6-9 months. However, construction activities have resumed in most of the states with limited labor and proper safety practices. Furthermore, the relaxation of completion deadlines by state RERAs have also brought some relief to the developers.

Commercial Real estate which continued to outperform in the last 3-4 years is currently witnessing a slowdown. With the companies switching to work from home, the occupancy levels are likely to stay under check. Year 2019 was a fruitful year for commercial real estate with approx. 64Msft being occupied during the year. Tier I cities witnessed approx. 17.5 Msft of leasing during the quarter ending Mar 20. Amidst the lockdown many companies have faced a liquidity crunch and have thus asked for rent waivers from landlords and rental renegotiations are an expected trend in the future.

Companies like Pharma, e-commerce and tech companies will continue to contribute to the commercial demand.

Although a slow down in the real estate market is expected to continue till the end of 2020, multiple government initiatives to boost the economic activities will improve the situation in the coming quarters. A clear sign of recovery is expected once the pandemic is brought under control.

Article Courtesy: Prop Equity, real estate data, research and analytics firm based out of Gurgaon, India.

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