Coronavirus (COVID-19): Impact on Real Estate in India

Hello friends, Today I’m going to explain a topic "Coronavirus (COVID-19): Impact on Real Estate in India"
You can Read my previous Blog "GST in India - An Introduction", "GST Framework in India" & "Coronavirus (COVID-19): Key Announcements on Income Tax, GST, Finance and others"

Summary of the Blog:

1. Residential Real Estate 
2. Commercial Real Estate 
3. Industrial Real Estate 

1. Residential Real Estate

• Housing sector 

According to the Ramesh Nair, CEO & Country Head of JLL India "The injected liquidity of Rs 3.74 lakh crore (by the RBI) along with the 3 months moratorium on all term loans by financial institutions will alleviate short-term liquidity concerns and help developers as well as homebuyers . It is a big relief for developers and buyers to help them mitigate the challenges faced by them currently"
Niranjan Hiranandani, National President, NAREDCO, states that "Salvaging Indian realty, the second-largest employment generator is critical, not only from the GDP growth perspective but also for employment generation, since the sector has a multiplier effect on 250-plus allied industries."
Housing market in India’s top 9 cities (October-December 2019)
Sales                            Down 30%
Project launches          Down 44%
Inventory                     778,627 units
Source: PropTiger DataLabs

https://m.rbi.org.in/scripts/FS_FAQs.aspx?Id=77&fn=2

UCO Bank: The bank has announced the 3 months EMI moratorium on its term loans up to May 31, 2020.
Syndicate Bank: The bank has said, "EMIs of housing loan, vehicle loans, Micro, Small and Medium Enterprise (MSME) loans and payment of all other term loans falling due after 1st March 2020 and upto 31st May 2020 have been deferred by 3 months."

• Home Buyers 

(i) According to the survey by 99acres.com "40% of the prospective homebuyers, who were searching flats for purchase before the lockdown, have postponed their plan while 60% are still keen to buy within the next 12 months."
(ii) Major reasons for delaying their plan to buy were uncertainty in the market (56%) and financial factors (30%), the realty portal said.
(iii) As many as 75% preferred to search for homes online, the survey said

2. Commercial Real Estate

• Office Space 

According to JJL’s report, titled COVID-19 Global Real Estate Implications. “Office utilisation rates will fall as remote working increases and landlords with exposure to short-term leases are the most vulnerable as delay to investment activity and softer rental growth than previously forecast are headwinds to 2020 performance.”

Companies worldwide have announced remote working for employees to contain the virus spread, triggering a debate if Work from Home could replace office space in future.

Demand for remote working and investment in collaboration technologies would grow.
Fast-tracking a widespread adoption of these practices.

• Mall Operators 

“Low footfalls and subsequent closure of malls will impact developers’ debt servicing against the project. Even a relaxation from banks for the short-to-medium term should not have a big impact. However, if the virus scare continues beyond one to two quarters, debt servicing challenges may last for a longer period,” points out Rohan Sharma, research head, Cushman and Wakefield.

Niranjan Hiranandani, National President, NAREDCO, states that “The impact of COVID-19 in the form of shutdown of retail outlets and malls as also entertainment and fitness centers has put commercial real estate deals on a wait-and-watch mode.”

3. Industrial Real Estate

• Builders 

The government is expected to launch support measures for the developer community in order to offset the losses they will suffer on account of the Coronavirus spread, including allowing the force majeure clause to skip penalties over project delays. The 3 months EMI holiday for developers during the crucial period is one measure to offset their losses.

Niranjan Hiranandani, National President, NAREDCO, states that “The pandemic menace has hit at a particularly sensitive time. Across realty companies, this is the time when statutory payouts and streamlining of balance sheets happens. In this challenging time, we have asked the government for some economic interventions like rescheduling loan repayments, a one-time rollover for debt restructuring and deep interest rate cut.”

• Construction sector 

Construction-related Gross Value Added (GVA) and employment are expected to reduce between 15% to 34% and 11%to 25%, respectively, when compared to pre-crisis projections for Financial Year 2021.
Labour costs for skilled workers are expected to rise by 20%-25% while that for semi-skilled workers and unskilled workers is pegged to increase by 10%-15%.
Projects that are under development or Work-in-Progress are likely to take a severe hit with a minimum delay of 2 to 3 months, depending on their geography and spread of COVID-19 in and around the project site.

Indian real estate after Coronavirus: Top 11 projections
Source : Housing.com 

• Site visits to drop, impacting sales numbers.
• Project completion deadlines to extend, pushing completion farther.
• Overall cost of project to increase amid delays and supply constraints.
• Inventory levels to increases, intensifying pressure on builders.
• Prices might move slightly upwards despite the slow demand.
• Home loan interest rates to fall after repo rate cut to 4.4%.
• Remote working to gain traction in future as businesses embrace work from home culture.
• Higher investment likely in future office spaces to make them better prepared for crisis situations.
• Occupancy levels in office spaces to decline in the near term as remote working picks up.
• NRI investment in real estate may improve amid rupee fall.
• Cases of builder insolvency might increase as liquidity situations worsens

Thanks for reading friends, I will bring more such interesting topics related to Taxation & Updates regarding COVID-19 Impact on various Business, Sector as well as Tax implications or Tax Announcements due to COVID-19

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