While the coronavirus pandemic has shaken the aviation, hospitality, and retail industry, many others face losses. The Indian Real Estate industry is also one such area that has borne the brunt of covid.
The impact on this industry has been humongous. KPMG research shows an incurring loss of more than Rs. 1 Lakh crore in the real estate industry ever since the pandemic started. The report also highlighted a massive liquidity crunch experienced by the real estate developers.
Through this article, we will discuss the impacts of the COVID-19 pandemic on the Real Estate Industry in India.
Lockdowns 1.0 & 2.0
From March to June 2020, the entire country went into a complete lockdown. Property transactions came to an all-time low resulting in an almost halt. The emigration of migrant workers and the stopping of construction activities also caused a big blow to the real estate industry.
With the decrease in cases and opening up of borders, the market tried to recover, but it all was in vain. As the business started picking up, the second wave of the pandemic hit severely. The increase in fatalities furthermore declined the chances of citizens investing in real estate.
Now India is going through an aggressive vaccination drive, which looks like a boon for the Indian Real Estate Industry. The business is slowly picking up, and we can only hope to head towards sustainable recovery.
Impact Till Now
As mentioned previously, the report by KPMG gives some startling figures about the effect of the pandemic on the Indian real estate industry. Due to the shortage of credit, residential sales dropped from 4 lakh units in 2020 to 2.8 lakh units in 2021 across the seven largest cities in the country.
According to India Ratings, the overall residential demand has reduced by more than 40% in FY21’s HI. The sales are expected to remain low until the entire covid situation comes under control.
There has also been an increase in the unsold inventory due to the cautious buyer sentiment and limited movement. Liaise Foras commented that the increase in unsold inventory from 15 quarters towards the end of FY20 to more than 19 quarters at the end of Q1 FY21 says a lot about the massive impact of the pandemic.
Moreover, the unsold stock saw low sales in Q1 with further reduction in Q2 2020.
On the other side, there has been an acute rise in new project launches by a staggering 71% from January to June 2021. This increase can be attributed to the stamp duty reductions in the country.
Decrease in Office Space Leasing
As most companies moved towards a work-from-home model, the business of office space leasing companies fell rapidly. A report by Cushman and Wakefield mentions that the net leasing of office spaces reduced to 35 lakh square feet from January to March 2021, while it was about 70 lakh square feet in the same months last year.
The potential leasing transactions stand delayed for now and have been impacting the leasing rates. Companies like the Blackstone Group, the largest office space owners, reported that the pandemic has delayed several project completion deadlines, decreased demand, and even softened rentals.
The Retail Segment
Not just office leasing, the retail industry has also been hit badly due to the pandemic. Statistics show that curfews and lockdowns in the country reduced retail mobility by at least 55%.
The positive thing here is that mass vaccination initiatives have led to a sharp recovery of about 72% this year compared to the pre-pandemic stats.
Through the entire first and second waves of the pandemic, the real estate industry did not witness any specific price movement. The developers are still withholding prices because of the narrow profit margins.
Liquidity constraints might weaken the prices over a long period. The real estate developer community is positive yet very cautious. Mass vaccination drives are a prime reason for this positivity.
The real estate industry is closely knit with the construction industry making it another reason for their losses. The increase in costs in the construction arenas has also hampered real estate sales during the pandemic.