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The Revival of the Fittest

The Revival of the Fittest

- Ram Naik, Executive Director, The Guardians Real Estate Advisory

Three words over the past 4 years ended up changing the fate of India’s leading employment generating sector, yes sector, as a large part of the business is still awaiting industry status, Real Estate. These words were none other than GST, RERA and demonetization. Today, as you read this article it’s time to add one more to that list COVID-19. Come 1st of March 2020, while all of Real Estate was planning to make the most of auspicious days like Gudi Padwa and Akshaya Tritiya, make abundance of demand that comes from customers that wish to save the capital gain tax and also rake-in as much revenue as possible before rains affect construction activities at sites, little did they know that fate had an altogether different plan.

The real estate sector that has struggled with a pile-up of unsold inventory, stagnating prices and depleting volumes is bound to suffer an enormous impact of the novel coronavirus and the lockdown thereafter. The sector has been selling to the actual homebuyer and end-user over the past several years, as the investor has moved to greener pastures to realize better returns. The lockdown is bound to result in reduced salaries and job-cuts for the potential homebuyer and is therefore going to be a cause of concern for a sector that has started heavily depending on the salaried class for its sales. A large portion of the end-users come from the service class, especially in the affordable and mid-income housing segment. These segments are bound to face demand side constraints as a lot of these buyers may want to postpone their decisions for a later date. The affordable housing industry and mid-income housing have been a silver lining for the sector which has managed to thrive on large gatherings, extensive distribution and high footfalls to attain voluminous sales. All of that will take time to come back. In the meantime, innovation and realignment will become important once the lockdown is relaxed and life starts normalizing.

Once the lockdown is over, it will become important for the government to come up with a targeted and effective relief package for the sector to ensure both the demand and supply side problems are addressed. The RBI has brought down the borrowing cost for the potential homebuyer by slashing the repo rates; it’s time for the government to announce relief on the transaction cost. A temporary suspension of GST on affordable housing will help encourage buyers to keep their dream of owning a home alive. It is important to ensure that affordable housing is incentivized further, as it will help the government realize our honourable Prime Ministers dream of ‘Housing For All by 2022’. There are a lot of other things the government could do to bolster demand for this sector, a further tax rebate on interest for housing loans, a reduction in premiums for developers for FSI that could result in lucrative pricing for ongoing projects, etc. It is also important for the government to ensure liquidity in the marketplace and the same will require focus on bearing and supporting the EMI burden of the middle-class home buyer. The government needs to announce measures that come without costs for the impact to be felt on the ground. The current 3 month relief for EMI that was announced by the government didn’t resonate as effectively as it should have, simply because it comes at a cost. The government will have to come up with immense aid to revive the economy or at least bring it back to the pre-lockdown levels. The sector will suffer from shortage of labourers, as a lot many of them return to their native during rains and this time around the desire to go back will be even more because of the lockdown that has separated them from their families.

From the analysis of the prevailing sentiments, a turnaround is a minimum 2-3 quarters away, provided there aren’t significant salary cuts and job losses. It will remain to be seen how the government incentivizes businesses to retain employees. The government needs to move-in very swiftly on measures to help businesses save jobs, as a lot of organizations have already begun retrenchments across industries.

The post-lockdown scenario will require a new style of project planning. Amenities alone will not suffice; buyers would now focus on safety and security features far more than they ever have. Creating open spaces that encourage distancing, smart features within the house like video door phones, voice controlled electronics will be in vogue. Having said that, developers of such homes will still have to keep their costs under control to ensure that such features don’t end up pinching the pockets.

Going forward, developers will have to take some calls on a case-to-case basis; they will have to incentivize their channel partners to ensure that upfront price cuts and discounting does not happen across the board. Completing ongoing projects at the earliest will be the key to garnering business, customers in the interim will turn to ready-to-move-in apartments as they offer a sense of security and product sampling is far more precise. The key to revival will be delivery. We see Covid-19 push for consolidation in the industry at a far greater pace than before. A lot of developers will prefer aligning themselves to bigger and more trustworthy counterparts to see a steady flow of revenue. We see the industry bouncing back, but only with the finest.

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