Coronavirus had such a suffocating effect on the Indian real estate market that property transactions came to a halt when the country was put on lockdown during both rounds. Since then, the market has made numerous steps toward recovery, and just when it appeared that a comeback was on the horizon, the country is hit by another virus variety, Omicron. It is, however, too early to say whether the new variation would affect home demand and sales.
The real estate sector's response to a new and worrying variation of the COVID-19, Omicron, will be totally contingent on the severity of the infection and the subsequent declaration of lockdown/s. While the Omicron variety does not appear to have caused any major symptoms so far, health professionals believe that additional data is needed before solid conclusions can be made. So far, there has been no immediate impact on site visits, new bookings, or launches in the real estate market. However, with the Delhi government issuing a yellow alert and the state of Uttar Pradesh imposing a state-wide night curfew, we may be heading for another economic downturn. Omicron has the potential to continue the real estate patterns seen in the preceding two waves.
Experts predicted that the market will fully recover in 2021, since inquiries, site visits, and sales had begun to approach pre-COVID levels in most locations. The comeback of Coronavirus in a more fatal form by March 2021, on the other hand, has aroused anxieties even greater than last year. The real estate market has taken another hit, with partial lockdowns in places like Mumbai, Pune, and Delhi NCR, with people unable to get healthcare. Buyers have withdrawn from site inspections once more, causing home deals to lag. Industry experts believe that India's recovery would be greatly contingent on how it handles the second wave of Coronavirus and implements a widespread vaccination programme.
The impact of COVID-19 on Indian real estate has been extraordinary, as evidenced by the fact that the sector has lost over Rs 1 lakh crore since the epidemic broke out (Source: KPMG). The pandemic, according to the research, caused a major financial crunch for real estate developers. The loan crunch reduced residential sales in India's top seven cities from four lakh units in 2019-20 to 2.8 lakh units in 2020-21.
According to a survey by India Ratings (Ind-Ra), overall residential demand fell by more than 40% in the first half of FY21. Sales are expected to be restricted until the COVID-19 situation is effectively managed, according to the agency. However, between January and June 2021, the number of new project launches in India surged by 71%. (Image courtesy of Knight Frank.) Stamp duty reductions in many states are to blame for the increase in new launches.
Because of the limited movement and cautious buyer mentality, there was an extraordinary surge in unsold inventory. According to a Liases Foras analysis, the COVID-19-led lockdown resulted in an increase in unsold inventory from over 15 quarters at the end of FY-20 to over 19 quarters by the end of H1 FY21. Abysmally poor sales in Q1 aggravated the unsold stock, dampening recovery in Q2 2020.
In addition to having a negative impact on home sales, the work-from-home concept has harmed the growth of office space leasing organisations. According to a Cushman and Wakefield report, net leasing of office spaces fell to over 35 lakh sq ft in January-March 2021, down from around 70 lakh sq ft in the same period of the previous year. Since Q4 ended on a high note with the government's vaccination push picking up steam, the abrupt surge in cases across the country from February onwards did not auger well for the recovery cycle, and occupiers remained wary in the Apr-Jun 2021 quarter.
As a result, possible leasing agreements have been further delayed, affecting leasing rates.
Net lease rates have already dropped by 33% in the last year, while average commercial property values have dropped by 7-10%. Last year, Blackstone Group, one of India's leading office space owners, stated that the COVID-19 outbreak has pushed back project completion dates, reduced demand, and lowered rental rates.
The demand for flexible workspaces, which had risen in recent months, has plummeted once more. Experts predict that 38 million square feet of flexible workspace will be leased in the next year if the market recovers quickly. The implementation of technology and updated business processes has revived investors, according to CBRE's Occupiers' Survey.
Consumers are hesitant of visiting malls and shops, which has harmed the retail sector in the second phase. Retail mobility has decreased by 55-60% across India, according to statistics provided by Statista, due to partial lockdowns and curfews across cities. However, thanks to the optimism generated by the widespread vaccination campaign, the retail sector has recovered quickly, reaching 72 percent of pre-pandemic levels in July 2021.
So yet, the impact of the pandemic's second wave hasn't translated into a price change in the housing market. Due to tight profit margins, developers are continuing to hold off on raising prices, as they did last year. While liquidity limitations may reduce prices over time, any influence on pricing in the short term is quite improbable.
The year 2021 was predicted to be a year of recovery, and the Union Government's immunisation campaign bolstered that belief. Though an increase of COVID-19 instances in various parts of India (particularly Maharashtra) has prompted investors to stay cautious, the diminishing number of cases and increasing homebuyer demand have set the ground for a long-term recovery.
One of the major impediments to the expansion of the real estate sector has been the lack of credit. Financial institutions have been forced to avoid riskier investments due to the already uncertain environment, which has been exacerbated by the recent revival of the pandemic. This could exacerbate the real estate sector's already dire financial situation. However, historically low loan rates and stamp duty reductions in a number of states are expected to assist boost house demand. Furthermore, the state RERA authorities' completion timeline extensions have given real estate developers more time to complete their projects.
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