India’s real estate sector bracing for turbulence amid coronavirus crunch
Key Highlights
At the start of 2020, there was a sense of optimism within the real estate sector following reductions in lending rates
Many experts contend that property investors are unlikely to consider purchasing a cost-intensive asset like real estate, instead opting for a more cautious approach
An exacerbation of an already dire state of affairs within the Indian economy may force realtors to resort to distress sales in the months aheadIndia’s real estate sector had already taken a battering in 2019; however, the recent coronavirus outbreak is likely to plant even greater misery upon property sellers, as large piles of dormant inventory are now expected to be coupled with dwindling sales. At the start of 2020, there was a sense of optimism within the real estate sector as reductions in the lending rates, and ‘green shoots’ across the economy, suggested India may have turned a corner.
Wait and watch
The sentiment pervaded through both commercial and residential property sectors, following a slew of government measures, most notably those targeting the affordable housing segment. The increased volatility within equities market also had property developers and sellers hopeful that investors would turn to real estate as a safe haven asset amid the uncertainty, especially since the dip in prices across key urban segments.
However, the turmoil that the pandemic has caused has now seen several property consultants dampen their expectations for 2020. With the financial markets in complete disarray, huge uncertainty around when the country could return to work, unemployment expected to reach historic levels, and weak investor confidence in the banking sector, many experts contend that property investors are unlikely to consider purchasing a cost-intensive asset like real estate, instead opting for a more cautious approach.
A few consultants are foreasting a decline of annual home sales by as much as between 25 and 25 per cent in 2020. According to some experts, the effect of the pandemic now has credit ratings concerned that defaults in the sector may also be on the horizon. The real estate sector is widely regarded as one of the least resilient sectors to the outbreak, and with commercial cash flows taking a pounding, any sort of recovery is unlikely to be swift.
Nothing to lean on
What’s more, the outbreak comes in light of an actual increase in sales in the first quarter of 2020 compared to the final quarter of 2019. As such, realtors had held several launches and increased inventories in anticipation of a demand uptick. According to statistics from JLL Ltd, Indian developers may now have inventory or locked-in capital amounting to approximately Rs 3.7 trillion (as of 31 March).
Within the residential market, prices had stagnated for some time now, as wages and inflation rose, in what is commonly known as a ‘time correction.’ This meant that investors were already unlikely to experience any significant returns, and may now have to settle for rates below what they originally paid.
As such, the only question now is how long the suffering is likely to go on for. Realtors will be looking for some kind of policy support in the coming months, and many may even have the liquidity to stay afloat temporarily. However, an exacerbation of an already dire state of affairs within the Indian economy may force them to resort to distress sales in the months ahead.
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