The strained and anxious real estate market during lockdown went through near-stagnant days with no construction activity and no bookings from home buyers. Commerce Minister Piyush Goyal intervened to advice developers not to hold on to their stocks but “sell at realistic prices and not wait for a bailout from the Centre.” Fearing the massive backlog of construction work and unsold inventory that would be staring at developers and builders, especially during the last two quarters of 2020, the Minister added that everything would depend on how the offer is made. One can choose to be stuck with the material (inventory), or choose to sell at slightly lower rates and move forward, he indicated.
Bengaluru led the way with the maximum number of units launched compared to Mumbai, Hyderabad, Chennai and Kolkata in Q2 2020 with a share recorded at 49% of the total new launches. The Confederation of Real Estate Developers Association of India (CREDAI), Bengaluru, says the demand for residential in the affordable segment is picking up with serious buyers venturing out. While other cities are looking at discounts on real estate prices, Bengaluru has not seen any price reduction in any segment. “In fact developers are looking at 15 to 20 per cent hike in the next two quarters owing to input costs and labour shortage,” says Suresh Hari, Chairman, CREDAI Bengaluru, who spoke to Property Plus on the larger real estate scene in the city.
The real estate market is sluggish from the time of demonetisation, COVID-19 just adding salt to the wound. GDP in the last quarter has contracted to 23.9%. When do you think the economy and market will revive? In what ways can the government intervene to bring in confidence?
All factors earlier were getting neutralised, but COVID-19 was a sudden development . As everything is changing, the industry is also adapting to the new normal. The market is robust as regards enquiry is concerned. Online activity and social media-related conversions are high. The DGP figures across the globe have taken a major hit and India is one of the few that has taken least hit. Due to realignment of various segments, the demand for products is also changing. Gradually we see more demand arising for residential units of all categories. Initial feelers were that the luxury segment might take a hit. On the contrary the demand for this is also there and each category has increased enquiry.
The government has taken a lot of efforts, but much more is needed. They include:
* Moratorium period extension and interest waiver during the period.
* Stamp duty reduction to enable buyers take the call faster.
* Moratorium on EMI payment of consumers.
* Enhanced funding options for stalled projects.
* GST reduction with set-off provision option.
Even in a robust Bengaluru RE market, the lockdown sale was zero, we hear. When will we see a good pick-up?
The zero sale during lockdown was unavoidable. But once the market opened up, the enquiry levels too increased. Many members have confirmed that there is good demand for completed projects and where the project is in the advanced stage of completion.
The unavailability of labour stopped construction activities for nearly three months. What percentage do you see coming back?
The mass mis-communication or panic messages led to the exit of the majority of migrant labourers. The government, along with the industry, made all efforts to address the labour needs, but due to the fear and panic the labourers from other States made a quick exit. The return of such labour is slow, but many of the projects that had in-house labour stationed were able to get back to routine work. Most of the migrant workers were with specific skill and the construction industry would have had roughly 30% of them connected to the sector. We have sought an easy registration process for construction workers with unique individual number for them so that the benefit of the contribution the industry makes is accessible to them across the country.
What happens to the RERA deadlines that builders are committed to? Will the deadlines be extended to them?
Of course RERA authorities were very understanding and did extend the deadlines. The only challenge we had was registration of agreement during the lockdown and post-opening. We sought waiver of mandatory registration of agreements for some time due to the fear of visiting public places by customers.
The EMI moratorium will only be another burden on home buyers who will land up paying more interest on the accumulated principal?
We have sought government’s help to customers by easing their EMI payment terms and also for an extension. This will have a cascading effect. It’s a challenge for many who have lost their jobs. With moratorium, existing customers will get time to recover from the current crisis. That’s the stretch that anyone can expect, to be fair. Such allowances may help newer home buyers to gain confidence to decide on their future buy, as their job continuity would be established in a couple of months when the economy takes a recovery path. This would help them tackle the accumulated interest later.
What about the unsold units inventory piling up, especially with no liquidity right now? Are the builders ready for price slashes to bring in a balance?
The compilation is going on, we have no data available, as builders would perhaps wait for an active market and then take stock. But given the huge rush that is expected post-Deepavali from buyers, the unsold inventory numbers won’t be scary, compared with other cities as Mumbai and New Delhi. Bangalore’s RE market will recover sooner than most other cities.
Will the finance institutions and banks offer credit to builders and developers on a large scale to complete their projects?
At present only SWAMIH (Special Window for Affordable and Mid-Income Housing) fund is available. The industry is seeking availability of builder finance on easier norms or terms. Real estate enables more than 200 allied industries. So any support to real estate will enable more employment and faster economic revival.
Consultants speak out
According to real estate consultants JLL and Anarock, 60 per cent of the contractors in the construction industry feel that there would be project delays to the tune of 18 to 24 months. The other points to be noted include:
* Reverse migration of construction labour not at its peak yet, but will resume post-Dasara and Deepavali.
* While demand for affordable housing is very encouraging, luxury housing demands are subdued in Bengaluru.
* Bengaluru market will limp back to normalcy sooner than others, owing to demand from the younger crowd.
* There will be no price correction in the commercial segment, but residential is likely to see a correction in the last quarter of 2020.
* Cash inflow restrictions may force developers not to reduce prices as of now, but may extend comfort payment schedules
Office and residential market trends
The Vestian study ‘Connect Q2 2020’ led by Shrinivas Rao, CEO-APAC, Vestian Global, presents an analysis of office and residential market performance of Bengaluru, Mumbai, Hyderabad, Chennai and Kolkata.
* The five major cities saw absorption of approximately 4.42 million sq. ft of office space during Q2 2020, depicting a steep decline of 54% over the absorption observed in Q2 2019. During the quarter, Bengaluru led the way with 45% share of the total absorption, followed by Mumbai at 30%, Hyderabad accounting for 12% share, and Chennai and Kolkata taking 10% and 2% share respectively.
* The weighted average rentals of the five cities remained stagnant in Q2 2020 in the absence of of major leasing activity during the period.
* Bengaluru struggled with office space absorption of 2 million sq. ft in Q2 2020, a 43% decline YoY; new completions suffered as construction activity slowed down.
* Approximately 5,186 new residential units were launched overall in Bengaluru, Chennai, Hyderabad and Kolkata during Q2 2020, signifying a sharp decline of 71% YoY.
* Residential demand has been substantially impacted with people postponing their buying decisions with mounting job loss and pay cuts, while developers refrained from launching new projects.
* Residential market in the affordable and mid-segment saw 2,537 units launched in Q2 2020, signifying a steep fall of 66%.
‘Sentiments running low’
According to finance expert Balaji Rao who is following the trends in the real estate market, the pandemic has toppled the apple cart of Indian economy with disruptions across segments and sectors. “Real estate is one such badly hit segment since early 2020, that largely depends on the unorganised labour force, with migration issues hitting hard.”
Speaking on the lowest purchasing power by home buyers who depended on home loans and EMIs, Mr. Balaji Rao says RBI’s decision to bring down the interest rates to decades’ low hrepo rate at 4% (rate at which banks borrow from RBI on short-term basis) has helped little the sagging fortunes with people deferring their buying decisions indefinitely. “Job losses and unstable income have affected the sentiment and is expected to remain so for at least two more quarters, until the government revives the economy and confidence,” he adds.