Will Property Prices Crash in India due to the Coronavirus?
The current lockdown owing to the coronavirus crisis has hugely impacted the world economy as well as a majority of sectors across the globe, including real estate. However, there lies an opportunity in every crisis, and Covid-19 looks no different.
According to an Survey — which was an attempt to gauge homebuyers and open plot buyers preferences during the pandemic, which will invariably lead to emergence of significant trends in the Indian real estate industry — all industries including the real estate sector in India are now diligently working to innovate and strategize their business. Among the key noticeable trends, the residential sector is all set to embark on a different growth trajectory with ‘home ownership’ gaining significant preference among the new-age millennial and Covid-19 hasn’t dented demand for affordable homes.
Hyderabad realtors optimistic of bouncing back post lockdown
Those who are looking to buy property after the lockdown is lifted, it might be a good time as some developers might reduce prices by five to ten per cent to boost up their sales.
Although the lockdown has been extended and many large-scale construction projects have come to a standstill, property developers are optimistic about Hyderabad’s lucrative real estate market picking up, albeit after a slight sluggish resumption, once the restrictions are lifted.
A common line of thought among the developers is that the negative effect of the lockdown is expected to last for not more than three months after it is lifted and in this period they hope that the banks, as well as the Central and State governments, would take up measures to encourage people to buy property without hesitation.
CII Telangana, Infrastructure and Real Estate Committee Convener, Mr. C Shekar Reddy said that the banks must lower interest rates on housing loans and the government should provide interest subvention on housing loans for its employees. He also stressed on the need for manufacturers of raw materials like cement and steel to reduce the rates, to cushion the impact of overhead costs of lockdown on developers.
Telangana Real Estate Developers Association (TREDA) treasurer K Sreedhar Reddy pointed out, “For four to five months after the lockdown, there would be a slowdown in the business. But after that the city will bounce back.”
During this period, he said that the State government should reduce registration fee and the Central government should reduce GST on residential property, apart from providing incentives to home buyers during the year-end festive season.
But after the lockdown as property buyers showed interest in buying residential and open plot land, the Central governments haven’t changed any interest in reducing the GST on residential properties and apartments till now.
Those who are looking to buy property after the lockdown is lifted, it might be a good time as some developers might reduce prices by five to ten per cent to boost sales.
Some of the Real Estate, Chairman’s and Managing Director’s, said, “In Such a situation never existed earlier but we are sure things will be set right within six months after lifting the lockdown. Some developers in necessity of some liquidity might reduce property prices by five to ten per cent, but it doesn’t mean real estate prices reduced due to the COVID-19 pandemic situation.”
All real estate developers are also pinning their hopes on Hyderabad becoming a manufacturing hub and absorb office space as there are theories that the world’s focus might shift to India as a manufacturing destination post-Covid pandemic.
According to a Survey report the below following changes due to COVID:
Average rate per sq ft as on March 2020
Majority of respondents now largely favour risk-free investments. Also, online home sales will begin to gain traction and leading developers with good track record will be the main beneficiaries of this change. Property prices in India’s nine prime residential markets.
Why property prices in India might not drop after COVID-19?
The developer community in India has been in a tizzy after Union minister of commerce and industry Piyush Goyal on June 3rd 2020, said builders needed to sell housing projects at reduced prices and let go of the high-priced unsold stock. In a terse message to the community, the minister said the government might offer some concession in circle rates, to lower their burden but they must be more forthcoming in reducing prices.
“If any one of you feel that government will be able to finance in such a way that you can hold longer and wait for the market to improve — because market is not improving in a hurry — your best bet is to sell,” Goyal said during a video conference meeting organized by industry body National Real Estate Development Council (NAREDCO).
“You can choose to be stuck with your material (inventory), then default with the banks. Or, you can choose to sell it even if you have bought it at high prices and move forward,” he added.
The statement came as a rude shock to the NAREDCO, which has sought USD 200 billion in relief, to deal with the aftermath of the Coronavirus crisis. Before things went bad, because of the pandemic, the sector was already grappling with a $120-bad debt situation with banks.
Coming down heavily on the community, currently saddled with bad loans and huge inventory, the minister added, “You have to complete your projects before you sell, because buyers will not buy under-construction projects. In customer life, none of them will buy an under-construction flat from anybody.”
The Economic Survey 2019-20 also pointed out that builders should allow prices to drop, by taking a haircut as a remedy to reduce their inventory burden. Similar views were aired by the HDFC chairman when he said builders should sell their inventory at whatever prices they get to generate liquidity. However, a number of issues are at play, which makes accepting such suggestions difficult.
When asked whether his company plans to reduce prices to boost sales in the prevailing circumstances, Godrej Properties’ managing director Mohit Malhotra replied in the negative. “We do not have any plans of cutting prices. The industry has been reeling under a slowdown for the past eight years. There is limited scope to cut prices,” Malhotra was quoted by the media as saying. Many of his peers in the industry feel the same way. Why so?