Impact of the Covid-19 on Indian Housing Market And What lies ahead Post Vaccination Drive
As India has started the process to roll out the world’s biggest Covid-19 vaccination drive from mid-January to vaccinate its over 1.3 billion population, the positive impact of this programme could be seen in the housing sector too.
With a massive vaccination drive underway and optimism from its rollout, economic activity is expected to gain momentum in 2021. Therefore, economic growth will recover and improve significantly with the rollout of the vaccine programme in the country.
The Covid-19 situation started to get worrisome in India only in March 2020 with a rise in the number of infections. Thereafter, a prolonged lockdown was imposed in India from March 25, 2020, and was eventually extended till June 7, 2020.
The lockdown announced on account of the Covid-19 outbreak virtually brought to a standstill almost all economic activities in the country. It had an adverse impact almost on all sectors in India, including the housing sector. Due to this lockdown, both, construction and sales activities have come to a complete standstill across the entire housing sector. The pandemic caused a lot of destruction to the realty industry. On several construction sites, migrant workers had gone back to their home towns as they were also badly affected by this pandemic and thus giving the sites devastating looks. Even after the gradual end of lockdown, economic activity is only recommencing slowly, which may cause project delays of anywhere between 4 to 6 months at the least.
Business transactions came to a grinding halt across the world as many affected countries took several stern steps to contain the spread of pandemics. Due to this unprecedented situation across the world, monetary agencies were forced to slash growth forecasts for the global economy including India. According to some reports, housing sales in India’s eight major cities declined by 65-70 per cent in the period between July-September 2020.
What lies ahead Post Its Vaccination Drive
Similar to all other sectors, the Impact of the Covid-19 pandemic affected the residential sector as well with both sales and new project launches slowing down due to less demand as caution pervaded the market. Thereafter, the housing sector also went into a mode of caution and waits and watches for some time.
However, the sign of recovery witnessed as housing sales in Q3 2020 increased by a strong 68% on a quarterly basis according to some reports. Home sales in India’s eight prime residential markets touched 58,914 units in the October-December period of 2020.
This happened largely due to the fact that the central and some state governments came out with strong policy support, reduction in stamp duty and property registration fee in a few states along with other incentives and attractive payment schemes offered by the developers as well.
Moreover, the RBI also provided a big relief to developers and homebuyers by injecting liquidity of Rs 3.74 lakh crore along with the moratorium on all term loans by financial institutions along with low mortgage rates.
The RBI announced several rate cuts, bringing the repo rate down to 4%. The step provided major support to the existing buyers, who might have been struggling to pay EMIs in the short-term or medium-term, because of the lockdown or in the event of job loss. Currently, the home loan interest rates are below 7% and the rebate against home loan interest payment is as high as Rs 3.50 lakhs per annum.
This slew of measures helped developers as well as homebuyers in alleviating short-term liquidity challenges faced by them during this pandemic. Besides, the central government had also announced a last-mile funding mechanism by setting up a Rs 25,000-crore stress fund for stuck projects to boost builder’s sentiments.
Going forward, we can expect a gradual improvement in sales activities across all segments in the real estate sector. The two segments that together accounted for a share of more than 80 per cent in overall housing sales in 2020 are the affordable homes and mid-income segments with the range of INR 45 lakh to INR 1 crore. They have been the key categories in 2020 among homebuyers and are expected to perform relatively better in 2021 as well. Moreover, housing projects launched in locations with well-developed infrastructures are expected to see greater traction. However, the demand for ready-to-move-in projects is expected to be higher.
Impact of the Covid-19 on Home Buyers in India
The pandemic has impacted the income-generating capacity of a large number of people. As the fact remains that many companies would scale down their workforce would also force many prospective home buyers to wait for clarity on their job security, before making a final decision on property purchase.
Moreover, many homebuyers were unwilling or unable to undertake construction site visits during and after the outbreak of Covid-19, this had also resulted in the postponing of property purchase decisions.
However, the Covid-19 has also made people realise the value of homeownership during this tough period, thus, giving a big sentimental boost to the housing sector.
Impact of the Covid-19 on Builders in India
A near-halt situation on construction activities was seen during the lockdown period to contain the Covid-19 virus in India. Subsequently, the shortage of labour and delays in the supply of manufacturing materials have further pushed delivery timelines of ongoing projects. This also led to increasing the overall cost for developers. Small builders were pinning their hopes on government support for the funding to deliver projects within the stipulated timeline and also reduce the increasing unsold stock. Otherwise, cases of builder insolvency might increase as liquidity situations worsen.
Several measures were announced by the government in its Covid-19 stimulus package including the EMI holiday for developers during the crucial period to provide relief to the builder community.
The RBI announced on March 28 a three-month moratorium on loans repayment to provide some relief to builders which were subsequently extended till August 31, 2020.
Delays in the supply of construction materials and shortage of labour have further pushed delivery timelines of ongoing projects. Therefore, the government also announced that the developers could get project deadlines extended by six months through the RERA citing the force majeure clause.
Now, all small under-construction projects may find it difficult to sell units in a project. A strong brand would be essential for any Indian real estate company to sell an under-construction project.
Therefore, a consolidation process is emerging among real estate developers wherein a developer with a consistent track record of execution, fiscal discipline, transparency, customer-centric and corporate governance, will thrive and gain the majority of the market share post-COVID-19 period.
According to a report, the top 10 real estate developers in India have a market share of around 11% on a pan-India basis and this trend is going to accelerate with the emergence of some big developers in India. These top developers will become pan-India players by increasing their market share over the next few years horizon and will also attract private equity. Therefore, the sector is likely to witness more joint ventures between small developers and established players. This trend will eventually benefit consumers, as financially weak developers are weeded out and incomplete projects will finally see the light of day.
Inventory levels are most likely to increase in the housing sector due to the adverse impact caused by the imposition of the prolonged lockdown. As per a report of ANAROCK, there are approximately 5.46 lakh unsold units across the top 7 cities priced up to Rs 1.5 crore, with another 49,500 units priced between Rs 1.5 crore to Rs 2.5 crore.
Outlook for Indian Housing Market in 2021
While 2020 has been an unprecedented year globally, it is also going to create some unique opportunities for the housing sector and most likely to usher in a new era of innovation and digital transformation going forward. As we continue to learn to live in this COVID-19 era, the year 2021 would require us to recalibrate the way we have operated so far.
Even though the pandemic drastically impacted the sector in 2020, better days are expected in 2021. There will be a sustainable and sharp increase in demand in the housing market and the sector will emerge resilient in the future.
India has a young population and with the growing importance of homeownership among buyers, the demands in housing sales are expected to be higher in the coming years.
In fact, the recovery of Indian real estate, the second-largest employment generator is essential from both a GDP growth perspective as well as employment generation. Although gradually, the housing sales in India’s key markets have started to bounce back. In spite of the general gloom caused by the pandemic, the Indian housing market has started to get back to normalcy gradually, showing the immense resilience and potential of this sector.
Impact of the Covid-19 on Indian Housing Market And What lies ahead Post Vaccination Drive
Ajay Verma, founder, and writer of The Housing World, a real estate and mortgage news website. He has over fifteen years of rich experience in the above-mentioned industries.