The residential real estate is going through a phase of uncertainty. Post lockdown though the sales have picked up in selected few cities; overall the demand is sluggish. The sops & stimulus packages by the government and discounts & schemes have failed to elicit response. In this article EPC World highlights the important developments in the Pandemic time.
Like all industry battered by Covid-19, real estate too was badly hit. Residential real estate was already going through a sluggish phase when the Pandemic hit. The government announced total lockdown from 24th March for 21 days to curtail the spread of Covid-19 virus which was further extended till 3rd May. During the lockdown period construction activities came to a standstill. Migrant labourers left the construction site and moved back to their villages. Residential sales too came to a standstill. After the partial lifting of the lockdown sales started to trickle in. “While Q1 was a washout, there has been some buoyancy over the last 3 months beginning September,” says Rajat Bahl, Chief Knowledge Officer, Brickwork Ratings.
Real estate contributes substantially to the growth of the country economy. It is estimated by 2025, real estate will contribute 13% to the country's GDP. Growth or downfall in real estate has a cascading effect on the ancillary industries such as cement, steel, timber, brick, building materials, elevator, titles, sanitaryware, faucets, pipe manufacturers, in fact more than 100 ancillary industries fortune depends on real estate industry. Now, with Covid-19 and subsequent lockdown the real estate industry went into a downward spiral. To boost the sluggish residential real estate the government approved Rs 25,000-crore special window to provide funding to housing projects that are stuck.
In Q3 during the festive season when maximum residential sales take place, Nirmala Sitharaman, Union Finance Minister, announced income tax relief for both developers and homebuyers, as well as additional outlay of Rs. 18,000 crore for PM Awaas Yojana. This has a desirous affect. Sales which were plummeting took U-turn. “The last four months of 2020 have seen a recovery in the residential market, this is also a result of pent up demand over the past couple of years evolving into home buying, as a result of the pandemic. We are seeing trends over the past few months of sales driven by increased consumer demand, the sustainability of this trend will set the tone for the next phase of economic growth,” says Dr. Niranjan Hiranandani, Founder and Chairman, Hiranandani Group and President, NAREDCO and Assocham.
“Despite the unusual pressures on the housing market, residential real estate is on a high this festive season. At the industry level, ANAROCK data reveals that the top 7 cities altogether saw housing sales of nearly 42,250 units in the last two quarters (April-Sept period). Further, the ongoing festive quarter (Oct-Dec period) is also seeing robust housing sales across the top cities. This is largely due to multiple offers and discounts being doled out by developers all across and limited-period stamp duty cuts in states such as Maharashtra. These discounts and offers collectively give buyers overall financial benefit between 5-15% of the property cost depending on project, amenities, etc. Additionally, lower home loan interest rates are also attracting buyers,” says Anuj Puri, Chairman, ANAROCK Property Consultants. Divyesh Shah, Associate Director and Sector Specialist, CARE Ratings too agrees that with the ongoing festive season, Q3FY21 witnessed a rebound in demand. “However, in Q2FY21, while the economic activities showed signs of improvement, the sector too has witnessed steady sales traction especially for mid-end and affordable dwellings priced under INR 5 mn. Further, with ongoing festive season, Q3FY21 so far has witnessed clear rebound in demand and RBI revising its full year projection of GDP contraction to -7.50% from earlier forecast of – 9.50% corroborates the same. With evident signs of recovery, large developers are now eyeing onto launching their deferred projects which would eventually push the new launches and sales on a growing trajectory,” says Divyesh Shah, Associate Director and Sector Specialist, CARE Ratings.
Shifting Buyers’ Preference
The Pandemic has surely shifted the thought process of the home buyers. Earlier it was to have a house in an upscale locality. The Pandemic and the subsequent lockdown brought in a new culture of “Work from Home”. With all the transportation system at standstill to curtail the spread of Covid-19 virus, employees were compelled to Work from Home. Prospective home buyers realised the importance of owning a home while the home owners realised it is more prudent to shift to a bigger home at the outskirts of the city. A bigger home with room for Work from Home. “Post Covid-19, the new work-from-home realities and online education is somewhat altering buyer preferences. Many of these prospective buyers are preferring larger spaces in the peripheries over small-size homes in city centres because the current situation demands so,” says Anuj Puri. While sharing his views on the changing home buyers’ preference, Siddhart Goel, Senior Director, Research, Colliers International India says, “The pandemic underscored the importance of home ownership for safety and hygiene reasons.The residential real estate market is currently driven by end users who prefer customizable spaces which can be used as workspaces or for online education. Although, vast majority of the buyers’ are preferring mid-size apartments there are some buyers’ interested in larger residential properties even if that means relocating to suburbs or peripheral areas within the city and in some cases, even to other smaller cities so that they do not go over budget.”
Even the government has come out in support for 'Work from Home'. Many a leading corporate have officially extended 'Work from Home' till the end of calendar year 2021. But the Pandemic is not going to last forever. Vaccines have been developed and will hit our shores early next year. The government machinery has plans to mass vaccinate its citizen to immunise them from Covid-19 virus. The picture will change once mass vaccination is in place. “Work from Home was a default option due to the lockdown which pushed many to remain confined to their homes. While corporate India was quick to adapt to work from home, the benefits of working from office far exceed mere cost saving which includes collaboration, data safety and security, work life balance, etc. It will depend on the strategies that various companies draw out especially after the launch of the mass vaccination programme. As we near the availability of a mass vaccine, we will see normality return to office space usage. In such context, co-working spaces are also expected to see a renewal of Work from office,” says Gulam Zia, Executive Director – Valuation & Advisory, Retail & Hospitality, Knight Frank India.
Marketing and Technology take a leap
In the first few months of Pandemic outbreak there were few impulsive decisions. The economy which was in sluggish state, nose derived furthered. Residential real estate went into doldrum. There are hardly any sales. The developers resorted to various marketing strategies to strike deals. Prospective home buyers were offered various discount such as waiver in stamp duty and registration charges, free car parking, fully furnished flats, flexible payment options, assured rents and other freebies.The sops offered by the developers did helped in selling inventories. “With developers innovating on their marketing prowess to include financial benefits, discount and easy payment options to attract buyers during the period of lockdown, sales have seen an uptick,” says Gulam Zia, Executive Director – Valuation & Advisory, Retail & Hospitality, Knight Frank India.
To curtail the spread of Covid-19, it is necessary to maintain social distance. Prospective buyers and fence sitter were reluctant for site visit. Innovative thinking and technology came in handy for the builders during this period. “Most broking firms are relying heavily on technology world over to continue doing their business during the present pandemic. They are seen to be transitioning anything that requires physical communication to virtual interaction. These include e-brochures for housing projects, virtual tours, videos or walkthroughs, video conference calls, setting up online payment structures and banking platforms. Thus, the world of real estate marketing is changing. The internet had already changed the game for realtors everywhere, with consumers being able to see new property from the comfort of their own homes,” says Anuj Puri. Hiranandani Group doled out stimulating offers Flexi-pay and Assured Rental schemes to beat the Pandemic blues while Godrej Properties and Embassy Group offer 10:90 scheme. As per the scheme, the prospective buyer has to pay upfront 10 percent of the total cost of the property at the time of registering / buying and the rest 90 percent in easy instalments.
Siddhart Goel explains in detailed how technology is being employed to showcase properties to the prospective buyer sitting without the need of the buyers to visit the site. “The pandemic induced lockdown and social distancing norms have accelerated some of the underlying trends in the sector like adoption of PropTech in residential real estate. Some of the technologies and the role that they play are Virtual property tours have become much more widespread than before. They are not just being deployed for luxury projects, but also for mid-range projects. Predictive Analytics and Personalized Recommendations: Listing platforms are increasingly employing and offering data analytics to users to help them understand market trends and offerings. Further, they are also using predictive analytics based on potential home buyer preferences. Although currently in early stage of adoption, Big Data analytics and Machine Learning have immense potential to significantly ease the process of property selection by predicting what a homebuyer would want, even if they have not explicitly stated that. Building Information Modelling (BIM): To ensure timely completion of projects and reduce cost overruns, numerous construction companies in India have prioritised the digital transformation journey by using BIM to store and process vital information about scheduling, costs, operations and maintenance. Internet of Things (IoT): increasing usage of IoT devices is helping to run and maintain individual homes to entire buildings and projects to enhance user comfort and experience”.
if not now then when
Vaccines to cure Covid-19 has hit the market and will be available in India early next year. The government has prepared a detailed mass vaccination of its citizens. This has given a hope of better sales in the next financial year. “on a positive note, the sector has started witnessing greenshoots of recovery with ongoing festive season and it would not take long to recover. Accordingly, second half of next financial year is certainly expected to witness a positive turnaround and large developers coming up with new launches will provide an impetus to overall growth trajectory. Given the current market conditions, affordable housing and mid-priced housing are the sweet spot for the developers. Hence, next financial year will witness relatively larger supply in such segments, says Divyesh Shah.
The Pandemic has shown the best and the worst for the residential real estate sector. The best part were innovation in marketing, technology taking a leap, lowest ever EMI, supportive government policies, integrated townships, assured rental income and the worst part is despite all these sales have not gained traction as expected. It is the salaried employees who drive the growth of the residential realty sector. Job loss and pay cut is making them to back out. Then there are the fence sitters who are eagerly watching and are expecting the prices to fall still further. “Fence sitters were waiting for clear signals that markets have bottomed out and that prices will not reduce further. The pandemic has provided that. They can be converted into buyers, if the State Governments allow Circle rates to reflect the true capital values for projects so that developers can also offer genuine and upfront discounts. Further, a reduction in Stamp Duty across all markets will ensure that they receive a further incentive as this will be a limited time offer from the State governments,” says Siddhart Goel.
Prices are already at its lowest. The developers have made every efforts and have doled out various scheme to increase sales. Even the government has cut the interest rate. Banks are offering the lowest EMI. Inspite of these measures, there is uncertainty. “What the sector needs is measures that will bolster demand. Some immediate measures that will boost demand include allow selective subvention schemes for developers with good track record; waiver of GST on homes for certain period may attract buyers as it will reduce overall property cost by at least 5% for premium homes priced above INR 45 lakh; reduction in ready reckoner rates & stamp duty cuts (like Maharashtra) may further attract prospective buyers. Limited-period stamp duty cut in Maharashtra has helped boost sales. It also helped the state government to increase its revenue with rise in property registrations. With RBI slashing repo rates earlier, it is imperative that banks further slash home loan rates as it may help alter the demand dynamics among the low and middle income groups.Increase tax benefits to homebuyers and also extend income limit under PMAY to boost demand,” says Anuj Puri.
The Pandemic has offered the best opportunity for prospective home buyers. Now it is up to buyers. Further dip in prices seems impossible at this juncture. “Rationalized pricing, historically low home loan interest rates, an extension of credit linked subsidy schemes and developers doling out lucrative schemes – the residential market is unlikely to offer this set of win-win options,” says Dr. Niranjan Hiranandani.
The momentum gained in festive season is set to continue in the next financial year.
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