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As vaccination process gathers pace, real estate to rebound

As vaccination process gathers pace, real estate to rebound

by Mitesh Shah, Founder, Urban Space Realty

Ever since a semblance of normalcy arrived during the start of the year, the focus of government, policy makers and the industry has been on under-construction and ready to move properties. In the discourse surrounding real estate sales, the discussion around launch of new projects understandably took a back seat. The government intervention like reduced stamp duty aided the under-construction and ready properties. The Jan-Mar quarter saw a surge of activity and the real estate sector wasn't all gloom, doom and destruction as it was touted to be. The fact that a lot of inventory was lying unsold added a sense of immediacy to the narrative. However, project launch in the real estate sector is a very important component in leading a sustainable growth in the industry.

A ready property doesn't yield much benefits in terms of new employment opportunities. It is a short term breather to developers looking for outright sales. An under construction property provides employment but serves the industry in the medium term and employment potential diminishes over time. A project launch meanwhile creates new opportunities and impacts the economy positively.

The second wave of lockdown has taken an expected toll on the real estate sector. Unlike other sectors which may seem to bounce back in a matter of months, developers are shying away from new projects for fear of uncertainty. A new project launch entails capital expenditure of massive proportion and fulfilling legal formalities for obtaining clearances The extent of damage which the first lockdown cost wasn't easy to estimate last year. The extent of economic setback this year is equally uncertain aggravating the concerns of real estate developers.

The real estate sector after a brief bounce back in Q4 of FY 2020-21 is again in crisis. The labourers are back into their rural hometown and developers are clueless on the next course of action. With most State governments declaring lockdown till May 15, it remains to be seen whether the date is just for the time being or whether it's one in a series of lockdowns over the next 6 months. There are no easy answers either with Industry or the government and a project launch at this stage doesn't seem like a good idea. However, the optional 50% premium announced by the Government will motivate developers to launch projects by Q3.

New project launches in the real estate sector have the potential to navigate the Indian economy out of rough terrains. Being the biggest asset class real estate sector consumes raw materials like steel and cement on a big scale while also employing large numbers of daily wagers. New launches can create a trickle down effect on a huge scale almost immediately. With the possible exception of the agricultural sector which employs the biggest percentage of Indians, Real Estate project launches have the biggest impact.

The unsold inventory problem in the real estate sector is largely a phenomena restricted to major metros. The Tier II and Tier III cities offer high potential for a number of projects. The pandemic has made owning a home a dire emergency as millions get home quarantined. New project launches in upcoming suburbs across the country have the potential to trigger the next wave of economic growth.

The negative impact of lockdown will last until the lockdown is lifted and the vaccination process gathers pace. The real estate sector needs at least a six month period of stability and certainty of victory over the virus before developers start investing in new projects. A policy environment favouring new launches can accelerate the process. At the end of the day, the new launches are what will be the building blocks of New India and pandemic is just a temporary blip. New projects are accompanied by attractive offers which not just fuels demand but also improves market sentiments and kickstarts hiring. Real estate sector is eagerly waiting for the day when new project launches outstrip existing inventory and the wheels of economy are back in motion.

 




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