The Covid-19 outbreak has naturally impacted the Indian real estate market like other business sectors. The realty sector was already grappling to overcome the impact of the liquidity crunch in the market along with higher inventory overhang and muted demand. However, the real estate buyer can still turn the seemingly negative situation into a win-win for themselves and the industry. How? Read on.
The silver lining for real estate developers lies in the fact that lower construction outflows owing to lower project activity, will naturally restrict declines in net cash flows at least for the short term. The RBI’s 3-month term loan installment moratorium will also boost cash flows of realty players in this period. Developers who are diversified and have stronger balance sheets with ample liquidity will be able to manage risks better. Lower costs of project construction will offset moderate inflows from projects. The decline in commodity prices will also lead to cost savings. RERA regulations have also provided for an extension of 1 year for executing projects in case of events that are beyond the control of developers.
There are several factors that may help in rekindling the interest of buyers in real estate. These include the following:
• Lower rates of interest– Attractive rates of interest on home loans will naturally bring back more buyers to the Indian realty market. This trend will be spurred by the latest monetary policy decision of the RBI (Reserve Bank of India) to slash the repo rates by 0.75%. This has naturally made home loans more affordable for customers. Rates of interest for home loans have come down to their lowest levels in more than 10-11 years across public and private sector banks. Rates now hover between 7.20-8.05% on an average. This is an opportunity that most buyers would not like to miss out on.
• Developer Discounts– Real estate developers in India are also likely to draw more buyers in a post-COVID-19 scenario by offering more freebies and discounts. With unsold and ready inventory levels still high, buyers can expect more discounts from developers which will make property buying more affordable and attractive at the same time.
• Stability of Investment– In the wake of the COVID-19 pandemic, most people are now realizing the importance of owning their own homes. This works out much better than tackling uncertainties and costs of living in rented units. People will now realize the value of having solid real estate in their portfolios, an investment/asset class that is more reliable and that offers steady returns in comparison to the volatile stock market and other investment options that will now have greater risks.
• Property Tax Relaxations– Buyers will also be attracted to the property market by relaxations in property taxes across various States and deferment of payment timelines. For instance, in Gurgaon, the date for payment of property taxes has been extended while the Government of Maharashtra has confirmed 1% concessions for stamp duty applicable for the MMR (Mumbai Metropolitan Region), Pimpri Chinchwad, Nagpur and Pune for 2 years. The South Delhi Municipal Corporation (SDMC) has extended the amnesty scheme for property taxes while Tamil Nadu has deferred property tax payment timelines by 3 months. Several States are relaxing or will relax property tax and other charges in the aftermath of the COVID-19 outbreak.
• Home loan EMI moratorium– The property market may also get a boost on account of the 3-month moratorium announced by the RBI on term loan repayments (including home loans). This means that the moratorium period is when buyers will not have to fork out EMI installments if they wish. Also, this will not lead to any impact on the credit history and rating of the borrower or impact risk classification for the loan in question. Interest will accrue on the outstanding term loan amount and the moratorium period was announced on the 27th of March 2020, by the RBI.
• Lower property prices– Indian real estate could also witness the growing interest of buyers owing to lower prices of property. Deepak Parekh, the Chairman at HDFC, has already forecasted a drop in real estate prices by at least 10-15% or even 20% in the aftermath of the COVID-19 pandemic. Prospective homebuyers with professional/job security and proper cash flows will naturally benefit in this scenario.
Like many other industry experts, Parekh has rightly opined that real estate will become an even more valuable asset class in the current scenario. This is because the value of global real estate will always exceed the value of bonds and stocks combined. In fact, several reports highlight how residential real estate sales in China for March 2020 stood at 95% as compared to levels seen in December last year. Post the ending of the lockdown in China, the realty market clearly seems to have bounced back. India may also witness a similar positive scenario.