Post COVID-19 Dilemma for Home Buyers on Real Estate Price

  • @kw
  • 23 Oct 2020

Real Estate has undergone changes since COVID-19 surfaced in the world in December 2019. The tough measures undertaken by countries to contain the pandemic resulted in an abrupt halt of all business activities across the world. The uncertain conditions failed to forecast the economic impact. Real estate sector which is the second largest employment provider in India is hard hit by the pandemic. The escalating COVID reported cases to 6,902,775 as on 8th Oct 2020, the economy is showing a decline. The gross domestic product (GDP) numbers for the first quarter showed a decline of 23.9% over the same quarter last fiscal earlier, global rating agencies Moody’s and Fitch also projected Indian economy to contract by 11.5% and 10.5% respectively, in the current fiscal.

The housing sale in India declined by 79% in the period between April –June 2020, it has though improved marginally since some relaxation was given to the real estate sector after June 2020. The impact has been so severe that the recovery rate is very slow. Although deal volumes in office space in India increased 27% year-on-year in 2019, to an all-time high of over 60 million sq. ft, the growth momentum in India’s commercial segment is also likely to get derailed due to the virus attack.

Pre-Corona period experts had predicted a substantial growth in the real estate sector but all estimates stands retracted. Number of home buyers has come down and many of them have postponed their plan to buy a home under these uncertain conditions. 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. Government had announced several measures to stimulate the real estate sector, such as lowering interest on home loan to make purchases more affordable, also setting up a Rs. 25,000 crore stress fund for projects which are held up due to fund crisis. As per the market sentiment in Delhi NCR, it does not seem like prices will go down immediately for ready to sell homes under new construction. However the housing prices in the resale segment have dropped to some extent. The demand slowdown in the residential segment has already curtailed housing sales. Buyers are in a dilemma whether to buy now or wait for prices to drop. But experts are of the opinion that this is the right time to buy homes as after the pandemic gets over the demand for housing will be high and subsequently prices are bound to move up.

It is also a fact that due to the slowdown in demand in the residential segment there is a large inventory piling up and the cash flow position of Real Estate Developers are not in good shape. Therefore, some buyers feel that this may be advantageous for them to go for hard negotiations and get a substantial discount.

Government has provided some relief such as a three-month moratorium announced by the RBI on March 28 on loans will provide some comfort to builders. This moratorium, which was subsequently extended by the RBI, on May 22, 2020, till August 31, 2020, may see further extension as the economic situation is seen deteriorating. Further, injecting Rs.3.74 lakh crore by RBI along with moratorium against all forms of loans by financial institutions is a big relief for developers, as well as home buyers. But it is yet to be seen the real impact on pricing of residential properties in the long term and price sensitivity on commercial projects. Considering the pandemic, RERA has allowed six months extension for project completion under force majeure clause.


KW Group's Anthem.

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