The unprecedented crisis put across by the COVID-19 outbreak has impacted the residential real estate significantly. The sector had already been grappling with subdued demand and liquidity crisis for a long period, and the pandemic has led to a screeching halt of new developments and pushed the probable recovery further away by a few years.
Keeping this in view, here are a few notable trends that are likely to emerge amidst the current COVID-19 situation:
1. Construction delays
As per ANAROCK Research, more than 15.62 lakh units launched between 2013 and 2019 across the top 7 cities of India are in various stages of construction. Of this, MMR and NCR together comprise of 57% or about 8.9 lakh units. With India being locked down until May 3, 2020 (as per the current advisory), there will be massive disruptions in the construction material supply even after the lockdown ends, leading to disturbances and delay in the construction activity.
“In our opinion, construction delays might run up to several months for well-funded projects, while for others, the delays may even be to the tune of a couple of years. Being declared a national disaster, even RERA will be ineffective in getting homebuyers to recover any penalties. Thus, they will have to brace for construction delays,” says Prashant Thakur, Director and Head-Research, ANAROCK Property Consultants.
2. Decline in new launches
The new launches across the top 7 cities of India began recovering gradually since 2017 as the dust of structural changes and policy reforms settled down. However, owing to liquidity crisis, the pace of new launch growth declined
gradually. On annual basis, new launches grew by 33% in 2018 over the previous year and in 2019 growth seen was only 21%.
Amidst the current COVID-19 outbreak, major disruptions are likely due to construction delays and financing issues. Moreover, this time around the festive season and the summer vacation period, which is the most opportune for new launches, may take a beating. As is, the third quarter of any calendar year is slow for new launches due to the ongoing monsoons and ‘shraad’ period. In this backdrop, in 2020, new launches are likely to register an annual decline to the tune of 25%-30%.
3. Sales slowdown
Sales across the top 7 cities of India remained muted in 2017 due to DeMo and other structural reforms. In 2018, sales improved by 18% over the previous year with RERA being in place and fence-sitters starting to come back to the market. However, the euphoria was short-lived and amidst the liquidity crisis and an overall gloom in the economy in 2019, sales improved only 9% over the previous year.
“Considering that residential real estate sales are highly dependent on physical site visits, interactions, discussions and physical documentation, we believe that sales in 2020 might be significantly hit due to the current COVID-19 outbreak in India. Many homebuyers will consider postponing their decisions either to stay away from the project sites or in the expectations of a price correction. In 2020, thus, residential real estate sales are likely to register an annual decline of around 25%-35%,” says Thakur.
4. Unsold inventory to remain stable
Amidst restricted supply and marginally improving demand, unsold inventory across the top 7 cities of India has been declining during the past few years. In 2018, the annual decline in unsold inventory was 7% while it declined by 4% in 2019. With new launches coming to a screeching halt at least for the next few months until we see COVID-19 containment in the country, homebuyers may spring into action during the second half and select from the existing unsold inventory from projects across various stages of construction. Unsold inventory is likely to remain largely stable in 2020 with a single digit annual decline of around 1%-3%.
5. Affordable housing segment tested
Nearly 40% of new launches added across the top 7 cities of India during the past few years have come in the affordable housing segment (units priced < Rs 40 lakh). The government’s strong push on ‘Housing for All’ mission and extension of several sops to the homebuyer and developer of this segment led to a wave of affordable housing developments. Also, land being a scarce resource in the core parts of many cities, new developments began to emerge in the affordable peripheral destinations.
“Amidst the current COVID-19 outbreak, we believe that the most affected segment of the working population is the target group for affordable housing developments. These homebuyers with limited income and lack of work from home facilities may have to face loss of pay or even jobs and may reconsider their purchase decisions. With affordable housing units accounting for around 36% of the overall unsold inventory across the top 7 cities as of Q1 2020, this segment was already being tested and the current pandemic outbreak has further worsened the situation. In our opinion, the unsold inventory in the affordable housing segment will register an annual increase of 1%-2%,” informs Thakur.