A few months back, we all took a step towards a new decade. But with the outbreak of unforeseen, unimaginable, and drastic events, we all were forced to take a step back in our lives. Yes, the outbreak of Covid-19, compelled all of us to think about our future, the forthcoming issues, crisis, or crunch which we might face due to irregularities caused by this pandemic situation. It’s true that none of the sectors remains unaffected by the wave of Corona-virus. But today, we are here to discuss the impact of Covid-19 on the Real Estate Business, which had already faced a slow economy in the preceding year.
The real estate business was already experiencing a liquidity champ from the last few quarters due to regulatory change, restrictions imposed by NGT over environmental issues, change in policies brought due to the IL&FS crisis, etc. But this unexpected situation caused a grave cut on the financial pockets of people. Therefore, it is undeniable that both the markets of real estate i.e. residential real estate and commercial real estate may face a crisis.
We shall here discuss the factors which may impact the real estate market in a direct or indirect approach.
- Immobilized industries and markets: The lockdown of the whole world has largely impacted the mobilization of industries as each and every product is the direct and indirect outcome of one and another. For e.g. Pharmaceutical industries, though no restrictions have been imposed due to restrictions imposed on industries producing packaging are facing a crisis.
- Reduced purchasing power parity (PPP): With frequent cases of retrenchment and layoff, the people are more focused to purchase the essentials needs. At this time it is nearly impossible for them to invest their cash mobility in other products, therefore, resulting in an immensely reduced purchasing capacity of customers.
- Restricted capital flow and liquidity potential: In this time of crisis, all are focused to reserve the cash flow-limiting to their ends. Due to which an unwanted restriction is imposed on capital flow by the customers themselves which have caused a huge gap in capital flow and their potential to liquidate their assets.
- Severe labour shortage: Due to lockdown, the migrated labour, which was an imminent part of the real estate and construction business, was forced to travel back to their rural homes. There is a high probability that due to this factor, the real estate market may face a big cramp as a severe shortage of labour will directly impact project launches.
- Shutting down of cement and raw materials industries: The Real market comprising both housing and commercial will face a big blow due to the unavailability of raw materials required for project completion. Moreover, restrictions on the imports of goods will be a factor for rising in prices of stored raw materials in India.
- Imbalance in the demand-supply chain: Due to the limited purchasing power of customers, the real estate may face challenges in attaining market stability. The demand has drastically decreased whereas the number of developed and constructed estates will be the same as now for the next quarter.
- Price reactions: Because of Covid-19, it is very obvious that the price of real estate will decrease or will remain the same, but will definitely not increase. India being a producer of steel and iron, real estate will have to survive on these two as the cost of other alternatives like plastic, silicone, etc may rise due to restrictions in the transportation of goods worldwide. Therefore the costs of developing and construction will go up which is an issue of great concern.
- The decrease in a new housing/ commercial project launches: Due to limitation on purchasing capacity, face to face meetings, and no visitor policies, the launches of new projects will face a delay. Though many are opting for digital launches, the market will still need time to adjust to this change.
- The enormous decrease in foreign investment: Last year was not a good year for Indian real estate but the loss of last year was little and was in bits and bytes was mitigated by the large investments made in real estate by Singapore and US-based companies. But due to Covid-19, this seems next to impossible as the whole world right now is intensely focused on surviving from this pandemic.
- Income from tenancy: When the lockdown was in force, the RBI had issued 6 months moratorium on loans. The government has also given direction to avoid the eviction of tenants due to the non-payment of rent during Covid-19. Though these steps are good when taken into account with public policy but have caused a great blow on the pockets of real estate persons, who has to pay the salary to their workers and employees but has no source of income to balance the same.
- Work from the home policy: The Work from Home policy, though during this period sounds like a good alternative solution to continue their work from home. But when the crisis will end, this alternative solution will affect the people’s psychology to rent or buy the commercial building especially when they themselves have to mitigate their own cost in order to recover from the economic slowdown.