Predicting resolution from Corona virus and effects of it on any sector, is as hazardous a guess as any. Many experts of Real Estate Sector are advocating that the rates are likely to go up as Loans would become cheaper etc. There is another set of analyst who expect that the rates may inch upwards.

If we analyse it, many aspects emerge. Lets deal with them one by one.

  • Financial State of Property Holders. In the era of 2000-2008, there was a deluge of investment in the Real Estate sector. Due to the slide down in last 8-10 years, weaker players moved out and only those with large pockets continued. Hence, selling under financial pressure has got reduced. One would understand that the HNIs or Investors, spread their investment asset class into their Own Businesses, Real Estate, Gold, Equity etc. It would therefore be a reasonable guess that desperate buying or selling is less likely.
  • Business Establishments with good property holdings. It is without doubt that the entire economy would take a big hit due to Covid19. How big? It is largely dependent on sectors and speculations. If the Company had enough liquidity, it would wade through and may not be forced financially to liquidate its assets. In case this stage comes, there could be a Free fall. However, this condition is less likely to emerge.
  • Cost of input materials. Quite debatable, as in some fields there would be time lag in startingproduction, whereas in others, the stockists would be eager to offload to earn much needed revenue & reduce holding costs. Overall, it would have limited effect.
  • Most buyers today are end users, very few are into investment mode in Real Estate. Hence, probably, the demand would more or less be constant. The buyers however, may pend their decisions for some time in view of low revenue flow due to lock down, likely to normalize in 2-3 Qrs.
  • The Builders have been paying salaries & fixed costs, which would result in reduced cash levels and hence eagerness to offload inventory at a competitive prices can not be ruled out.
  • Available data indicate that Property prices in India’s major / important residential markets have not been giving great returns even when the economy had started looking up. So, when there is an added problem its likelihood of giving high returns is arguable. Annualized property growth value (CAGR), as of December 2019 in cities like Mumbai, Noida, Delhi, Gurgaon, Pune, Ahmedabad, Bangaluru, Kolkotta Hyderabad, Indore, Chennai etc had been between -1.4 to 2.8%. Expecting any windfall gains is well nigh impossible.
  • Data indicates that in the major markets, unsold Inventory levels are tremendously high, to the tune of 6 to 7 lakh units, if not more. Developers have to sell these to avoid insolvency and NCLT etc.
  • Government action. Real Estate is one of the major job generators, a very large part being in the unorganized sector. It can not be ruled out that there may be some incentives for the sector to increase jobs. This can not be predicted, as there are too many imponderables for the Govt to handle. It is less likely to attract too much attention from the Financial Planners.
  • As a result of Lockdown, new launches are expected to further slow down. Hence, the existing inventory would get back some demand.  Government had set up Rs 25,000 crore Real Estate fund. The Contagion has led to huge revenue losses for the government and any more infusion here should not be expected in near future.
  • Good news is that Interest rates have come down and likely to further move down, so has been the interest earnings in Small savings & PPF etc, which means some increase in liquidity, as also availability of larger home loans. However, this may be offset by Job losses and resultant lesser number of people having home buying in their priority list.

To sum up, even though the government has extended the benefits offered under Section 80EEA till March 2021 and may be further extended to support the Real Estate Sector, there may not be any quantum shift in the current scenario. There would be some fluctuations, but any drastic chane may not be coming.