Much has changed since the Coronavirus hit the world in December 2019. Amid countries applying extreme measures to contain the pandemic, businesses came to a grinding halt across the world, forcing monetary agencies to slash growth forecasts for the global economy, India included.

In its World Economic Outlook October 2020 report titled, ‘A Long and Difficult Ascent’, the International Monetary Fund (IMF) has said that the Indian economy would grow at a -10.3% rate in 2020 – a downgrade of -5.8 percentage points from the agency’s June estimate.

As of November 25, 2020, India reported a total of 92,21,998 COVID-19 infections.

After the gross domestic product (GDP) numbers for the first quarter of FY21 showed a decline of 23.9% over the same quarter last fiscal earlier, global rating agencies S&P, Moody’s and Fitch also projected Indian economy to contract by 11.5% and 10.5%, respectively, in the current fiscal.

S&P Global Ratings, on September 14, 2020, cut its FY21 growth forecast for India to -9% against -5% estimated earlier, as the number of infections in the country touch record levels. “One factor holding back private economic activity is the continued escalation of the COVID-19,” S&P Global Ratings Asia-Pacific economist, Vishrut Rana said.

While the adverse effects of the pandemic are already being felt across the world, varying opinions are emerging on COVID-19’s impact on the real estate sector, a health emergency that force-launched the biggest ever work-from-home experiment globally, putting a question mark on the relevance of workspaces in a post-Coronavirus world.

In India, where the economic contraction indicates a delayed start of the long-arduous road to recovery, a prolonged lockdown — which started from March 25, 2020, and was eventually extended till June 7, 2020, amid a dramatic rise in the number of infections — worsened the situation in Asia’s third-largest economy.

As is evident, research agencies are predicting a near-term halt in the growth of real estate in India. PropTiger.com data show housing sales in India’s eight major cities declined by 66% in the period between July-September 2020.

“While the Chinese economy has been reeling under the impact of the Coronavirus contagion since December 2019, the situation started to get worrisome in India only in March 2020. The lockdown, which virtually brought to a standstill most economic activity in the country, has hurt all sectors, including real estate. The adverse impact of the Coronavirus is visible on housing sales in the last quarter of the last fiscal because March is usually one of the biggest months for sales,” says Dhruv Agarwala, Group CEO, Housing.com, Makaan.com, and PropTiger.com.

“With several macro-economic indicators showing a positive trend in September, we may well be on the road to a more sustained recovery and the upcoming festival season will be critical, in determining the growth trajectory in the sector over the next twelve months,” he adds.

Although deal volumes in office space in India increased 27% year-on-year in 2019, to an all-time high of over 60 million sq ft, the growth momentum in India’s commercial segment is also likely to get derailed due to the virus attack.

Any positive predictions about its growth made before the sudden outbreak of the global calamity stand retracted, as the government gets busy devising plans to stop businesses in general and the economy in particular from sinking deeper into a slump, amid impending fears of the rupee declining to a low of Rs 78 against the US dollar.

While the real extent of the damage is hard to grasp in a scenario where every day is making a great difference, one thing is for certain – India’s real estate sector will suffer short-term shocks on account of the contagion.

COVID-19 impact on Indian housing market

The Coronavirus spread has further delayed a recovery that might have seemed possible, because of various government measures to revive demand, even though, right now, it does not seem like prices will go down immediately.

Niranjan Hiranandani, national president, NAREDCO, states that “Salvaging Indian realty, the second-largest employment generator is critical, not only from the GDP growth perspective but also for employment generation, since the sector has a multiplier effect on 250-plus allied industries.”

The center in the recent past had announced higher tax breaks and lower interest rates on home loans to make purchases more lucrative, apart from setting up a Rs 25,000-crore stress fund for stuck projects.

The demand slowdown in the residential segment has already curtailed housing sales, project launches, and price growth in India’s residential realty sector, which has been reeling under the pressure caused by mega regulatory changes, such as the Real Estate Regulatory Authority (RERA), the Goods and Services Tax (GST), demonetization and the Benami property law.

Impact of Coronavirus on Indian real estate

According to rating agency ICRA, the pandemic, if not contained soon, would not only significantly impact the economy but also adversely hit developers’ cash flows and project delivery capabilities.

“In case of a longer outbreak though, the impact on overall economic activity is likely to be deeper and more sustained, which would result in a more significant impact on developer cash flows and project execution abilities, giving rise to wider credit-negative implications,” ICRA said in a recent note while also adding that the three-month moratorium announced by the RBI on March 28 on loans will provide some comfort to builders. This moratorium, which was subsequently extended by the RBI, on May 22, 2020, till August 31, 2020, may see the further extension as the economic situation is seen deteriorating.

“The injected liquidity of Rs 3.74 lakh crore (by the RBI) along with the moratorium on all term loans by financial institutions will alleviate short-term liquidity concerns and help developers, as well as home buyers. It is a big relief for developers and buyers to help them mitigate the challenges faced by them currently,” says Ramesh Nair, CEO & Country Head of JLL India.

Expecting delays in project completion and extending support to the builder community, the government has also said developers could get project deadlines extended by six months through the RERA citing the force majeure clause.

You may like to read: What is force majeure and how it works in real estate?

“Due to the lockdown announced on account of the COVID-19 outbreak, both, construction and sales activity, have come to a complete halt across the entire real estate sector. On several sites, construction workers, too, have gone back to their home towns. Even after the lockdown, the activity will only recommence gradually, which will cause project delays of anywhere between 4 to 6 months at the least,” said Sharad Mittal, CEO, and head, Motilal Oswal Real Estate Funds.

“Delivery of existing projects may get pushed back, depending on how quickly the input supply-chain and labor availability are restored. So, the fall in new supply may continue for the next few quarters, as developers wait for demand revival,” says, Mani Rangarajan, Group COO, Elara Technologies.

COVID-19 impact on homebuyers in India

If low-interest rates (home loan interest rates are at below 7% now) and high tax exemption (rebate against home loan interest payment is as high as Rs 3.50 lakhs per annum) were going to make a change in the consumer behavior, the Coronavirus outbreak is likely to halt that shift, at least in the near to medium term.

With property seekers unwilling or unable to undertake site visits, this could result in the postponing of purchase decisions. “With the Coronavirus pandemic impacting all sectors of the economy, the troubles have compounded for India’s realty sector, which has been dealing with a ‘challenging scenario’ since the economic and policy reforms were introduced. The slowdown since February-end is apparent and while site visits are almost non-existent, the decision-making process is hugely delayed,” says Hiranandani.

The fact that businesses would scale down their workforce would also force many prospective buyers to wait for clarity on their job security, before making a final decision on property purchase.

Even though the RBI has announced several rate cuts, bringing the repo rate down to 4%, any positive effect of the move on buyer sentiment would be seen only in the medium to long term. The step, however, would come as major support for existing buyers, who might struggle to pay EMIs in the short-term or medium-term, because of the lockdown or in the event of job loss.

However, the pandemic has also made buyers realize the value of homeownership, thus, giving a sold sentiment boost to residential real estate.

In a survey conducted by Housing.com in collaboration with NARECCO, 53% of respondents said they have put their plans to buy a property on hold only for six months and plan to return to the market after that. Nearly 33% of respondents in the survey also said they would have to upgrade their homes, in order to work from home. In a renters’ survey, 47% of respondents said they would like to invest in property if it was rightly priced.

“We are seeing increasing digitization of real estate with significant growth in online demand, as developers and buyers adopt products such as virtual tours, drone shoots, video calls, and online booking platforms. We may be seeing a shift in the real-estate sector, where technology will play a significant role in property renting and buying and property registration may move online in some states. While physical site visits will remain important, buyers will use technology to discover new homes with some buyers booking online and buyers will likely make fewer site visits than before,” says Rangarajan.

Impact of Coronavirus on Indian real estate

COVID-19 impact on builders in India

Slump-hit builders were pinning their hopes on government support to shed the increasing unsold stock even as an ongoing crisis in the country’s non-banking finance sector, a key source for housing sector funding, made borrowing extremely difficult, jeopardizing their plans to deliver projects within the promised timeline.

Developers were sitting on an unsold stock worth approximately Rs 6 lakh crores, as of September 2020, show PropTiger.com data. A near-halt situation on construction activity amid a lockdown in India to contain the virus and delay in supply of manufacturing material and equipment from China, will further push delivery timelines of ongoing projects, consequently increasing the overall cost for developers. Through furious efforts, China, the country where the virus originated, has been able to rein-in the pandemic, with workers returning to offices. However, amid tension between the two neighbors, builders here will be forced to postpone orders.

Several measures announced by the government in its Coronavirus-specific stimulus package and the EMI holiday for developers during the crucial period are some steps that might offer some relief to the builder community.

“The pandemic menace has hit at a particularly sensitive time. Across realty companies, this is the time when statutory payouts and streamlining of balance sheets happens,” Hiranandani added.