The importance of owning a home has re-established itself amid the COVID-19 crisis, among other learnings of the unprecedented times that the world is facing today. In addition to avoiding the risks that come with living in a rented space, owning real estate is also seen as an important asset in one’s investment portfolio. In a report by Knight Frank, it outlined the surge in property sales in China, the centre of the coronavirus outbreak. As of March 31, real estate sales reached 5976, up from the pre-pandemic average of 5760, in December 2019. Following the lockdown which was lifted after over two months, the bounce back signals a trend, which is likely to be witnessed in the Indian market as well.
As the Reserve Bank of India slashed repo rates by 0.75 basis points, this has reduced the rate of interest on home loans. Along with stagnant and reduced property prices, the combination is an attractive offer, and has the potential to drive real estate sales across the country.
Having said that, the uncertainty of the given situation prevails over-promising prospects and the decision to purchase property is likely to be deferred because of the ever-changing market sentiment, and trends. Here’s what is defining the sector amid the pandemic:
Large Scale Consolidation
For a few years now, the real estate sector in India has been consolidating. When RERA was introduced, smaller players struggled to adhere to the new norms laid down. They were left with two options: consolidate with a larger player, or shut shop. When the liquidity crisis hit, there was a new wave of consolidation and a rise in the number of new launches from established developers. This is likely to continue amidst the crisis, and as time progresses, we could see a number of developers join hands with bigger brands.
Slowdown In Sales
Since 2017, the real estate sector has seen a number of highs and lows, with almost no respite at this point. The market, which is already reeling from the slump, is seeing a further dip in sales because of the pandemic. Real estate sales are largely dependent on on-site visits, in-person discussions, and physical documentation. With the whole country under lockdown, as well as the fear of a second wave prevailing, homebuyers will postpone decisions related to purchasing a property.
Unsold Inventory Will Remain Stable
In 2018, unsold inventory declined by 7%, and in 2019 by 4%. This year, however, with construction, sales, and movement at a complete halt, it will affect inventory. While we can expect to see sales pick up in the latter half of the year, it might not be by much, with just a decline of 1-3% in the unsold inventory.
Cost Of Production Vs Cost Of Sale
India is a large importer of steel and iron, materials essential for construction from China, but with production and imports halted, developers are staring at increasing costs. However, given the current market sentiment, this increase cannot be passed on to buyers, and will result in reduced profits. Buyers can expect property prices to remain the same in this scenario for the foreseeable future.
While buyers might postpone their decisions to purchase a home, they will always be on the lookout for a home, for the future. With the advent of online property sales aggregators, buyers can now view, compare, and shortlist homes to visit, when the lockdown ends. With close to 600 million internet users in India, it presents a huge opportunity for the real estate segment to tap; keeping in mind the demand which will increase towards the latter part of the year.
All things considered, the burning question remains: Is it wise to buy property this year? The answer is yes! Real estate will continue to remain an attractive asset and be a sense of security for any buyer. Especially with prices being at a standstill, now is a great time for buyers to leverage this, and as a ripple effect, revive the great Indian economy.
(Source: Financial Express)