Impact of COVID-19 on the Real Estate Market

3 min read

These are the best times and these are the worst times. One is tempted to draw a parallel from the opening lines of “A tale of two cities”. The COVID-19 Impact unprecedented pandemic has hit both the ends of the real estate market – the sellers and the buyers, and the revival is laborious and quite uncertain.

Hiring labour for the construction industry has always been challenging but today due to the COVID-19 Impact crisis, there is a nerve-jangling and enervating situation for the real estate developers. The pandemic has affected the Real Este Market in the following way:

  • Many home buyers today are trying to find reasons to invest in Real Estate vs. Stocks because, despite its inherent risk, stock market investment looks rosy today compared to the deep abyss in which the real estate sector has plummeted into.
  • Millions of workers have migrated back home to escape the pressing crisis in the cities and to meet their parents and relatives who also are eager to see them back safely. It was the only choice they had because they were facing a double-edged weapon of starvation on one hand and perils of the disease on the other.

Now the question is whether the sector will rebound after the restrictions are lifted and the normalcy returns?

COVID

Is The Real Estate Business Going To Boom Post-COVID?

The present situation is as follows:

  • Presently the employers of these workers, who are in the reverse migration milieu, are dreading a nightmare scenario even after COVID-19.
  • Their profits are nose-diving,
  • inventory is rising by the day,
  • The home-buyers are going south.

Post COVID-19 Impact Situation-Challenges

  • Kick-starting operations will be herculean for all the sectors even after corona is gone for good.
  • Real estate is a labour-intensive industry and the reverse migration of workers is like last straw on the camel’s back.
  • To top the woe is the paradoxical steps taken by the government employing the workers in their hometowns, giving them adequate food and other essential supplies along with sustenance wages.
  • Many are afraid that this will cause a large number of these workers to stay permanently in their hometowns and never coming back to the cities. Why will the workers return to cities if they are provided support at home?

Time and again we are faced with the question-

Will COVID-19 Impact push people into buying homes?

  • One cannot think of this by any stretch of imagination based on the way things stand today.
  • Many buyers are rather pushed back and scurrying back for cover for they know they cannot afford to risk their hard-earned savings into buying unfinished property today when their completion is blurred in the horizon.
  • It is said that buyers are now interested more to buy ready-to-move-in houses even in the secondary market though they may have to pay the premium.
  • They are willing to take that challenge rather than heading straight for uncharted waters.

This leaves with the question then-

When will Indian real estate sector recover?

Nobody can say for sure. However, the following may occur:

  • Even after restrictions are lifted, the workers may not come back to work because there are assured wages from MNREGA.
  • It will be a big worry for the developers because it’s going to delay projects stretching a few months or even a year or so.
  • The prices will remain grounded until normalcy returns.
  • There is a disruption of logistics and transport due to total restrictions affecting the supply chain creating a shortage of raw materials.
  • There is a Catch-22 situation for the developers because even if the workers are persuaded to come back to work, there won’t be any work for want of construction materials such as cement, steel, etc.
  • The developers now may be penalised by new RERA regulations for the delay in construction or delivery of properties. There is one year provision of extension of work but the problem is if the delays stretch beyond one year what’s going to be the fate of the developers.
  • It is understood that the delays are caused due to reasons beyond the control of the developers or builders.

Some migrant workers are still stuck in the cities because they could not go back home due to the unavailability of transport. The developers cannot bank on their presence either because these workers are waiting at the wings and the moment roads open up, they will rush back to their homes. Now there is an alternative open to the developers to attract workers back to work and it is by offering them better wages and safer working conditions. Again, this is not an easy option because the inventories are rising and profits are not in sight. Buyers are opting for ready flats instead of under-construction ones. So, it is a situation of no work, no labour, no liquidity, no raw materials and no bookings. It is affecting the bottom lines of the developers.

The Reserve Bank of India has got a major role to play. To inject fresh energy to the economy, it can once again cut down on the repo rate of the banks and instruct the banks to pass on the benefits to the consumers. Apart from that, if other allied sectors are revived, if FDIs come in, the mood can go up and the economy will be put in the fast lane.