In the last few months, the COVID-19 pandemic has changed the way we live, work and socialize. The long-term effects of this pandemic are expected to bring in lasting changes in our built environment, transforming the real estate landscape around the world and subsequently India. With the second wave into the picture, will property prices witness a hit in India?
COVID-19-led a slowdown in the growth of the real estate sector, but property prices in India did not testify to any major decline in 2020. There was an augmentation in the market to a certain extent at the beginning of this year which coupled with home loan interest rates at an all-time low, improved the housing affordability across the metro cities, comprising Mumbai, Bangalore, Pune, and Chennai.
Even though the experts were prognosticating a robust real estate recovery in 2021, the recent scenario in COVID-19 cases and the second wave is likely to act as a short-term moaner.
As per a recent report by Knight Frank, property prices across the top eight cities have somewhat remained firm every quarter in Q1 2021, except Chennai and Hyderabad, which have shown an appreciation of eight per cent and five per cent. This is due to, as compared to the other main cities of India, Chennai is relatively an end-user driven market. Every quarter, the city has observed increased demand from buyers, and therefore, areas like Mogappair, Porur, Manapakkam and others along the OMR belt have deposed an appreciation in property prices up to a specific degree.
Due to the current situation, the comprehensive recovery of real estate seems to be a far reality. Moreover, if there is a complete lockdown and the second wave endures for long, it would certainly be a big concern for the real estate sector. The unpropitious impact on demand for housing, which was just beginning to show signs of improvement, could translate into mangled housing sales. In such a situation, the buyers will be left wondering whether the rates of housing units would crash in the coming days.
For most of the industry connoisseurs, property prices in India are absurd to reduce further as the developers are already working on paper-thin margins. Mohit Malhotra, Managing Director, Godrej Properties’, in this context avow “We do not have any plans of cutting prices. The industry has been staggering under a slowdown for the past eight years. There is limited scope to cut prices.”
The Economic Survey 2019-20 also denoted that builders should allow prices to drop, by taking a haircut as a remedy to reduce their inventory burden. Similar opinion was shared by the HDFC chairman when he mentioned builders should sell their inventory at any prices they get to generate liquidity. However, several issues are at play, which makes accepting such instructions difficult.
In this entire situation, the developers are under tremendous pressure. As on September 30, 2020, developers were holding on to an unsold stock compromising over 7.23 lakh units worth over Rs 6 lakh crore in the top nine residential markets.
There are also a few experts who are looking forward to a marginal increase in property prices in India. Forsay, Dhiraj Jain, Director, Mahagun Group, avers, “The price of a few raw materials has gone up by 200 per cent in the last three years, making it infeasible to cut down costs in real estate. In 2021, we can expect the prices to increase in the range of 5-8 per cent across various micro-markets.”
As per JLL, the major metro cities have observed an upswing of 5-6 per cent in recent times in the cost of construction, which can be accredited to the procurement challenges faced by the vendors, a stop in construction activities, heckle in supply chains, increase in the cost of raw materials, and rising cost towards health and safety amid the global crisis.
Other than rising construction cost, migration of labourers, decrease in buyer sentiment, flattening sales, cash flow problems, and pressure to keep with debt repayments, are some major issues being faced by the developers these days. Although the government has taken some amazing actions to support the sector in recent times, such as the implementation of stress funds and stimulus packages, further reforms are required to help the sector revive. Amid all these issues, a reduction in property prices does not seem to be a possibility.
Housing prices in some of the megacities of India have witnessed notable improvement. While expecting appreciation shortly would not be a wise idea, this current scenario does provide investors with an opportunity to put their money in residential real estate at a low price point. Since prices are unlikely to undergo any further change, this could prove to be an ideal opportunity for buyers, if they can arrange the funds. Since home loan interest rates are also at record low levels currently, housing finance is also convenient to buyers and investors at remarkably economical prices.