The same question is lurking inside everyone’s minds. What’s going to happen to the real estate market after the lock down. It is a serious issue that significantly impacts all sectors, most importantly – the construction sector. In order to understand the magnitude of the impact, statistics from the Niti Aayog, February 2018 report suggest that in the business year of 2018-19, the construction sector made up 7.54% of the total economy of India while the real estate sector stood at 15.54%.
The current situation residing in the real estate sector is one facing the fact that the workforce seems to be at a pause. With many not being able to perform their professional tasks, we are looking at a number of arising issues. Construction has been halted in most sites because of the absence of labour which results in zero sales of any property. The real estate market had just started recovering from its recent downfall but considering the effects of the pandemic, the market has plummeted down, going lower than its position last year. In a study conducted by JLL Inc., the Indian real estate sector was projected to reach a market size of USD 180 billion by 2020. It also projected that the housing sector’s contribution to the GDP will be more than 11% by 2020. However, bearing in mind the ongoing pandemic, the experts are surely revisiting their approaches to analyze the market’s position today.
It may be recalled that since mid-2016, the sector had been reeling under severe stress due to certain government interventions and policies. This stress was more substantial due to the fact that this is one of the sectors that I deem to be incredibly unorganized. So obviously, the government had to intervene and introduce various strict measures for systematizing it. The government intervened with three important measures – Demonetization, introduction of GST and introduction of RERA. These policies hit the sector below the belt and made things immensely tougher for the sector as a whole. Even the bigger, well established developers faced hardship despite having a decent, steady income as a result of these new guidelines.
Gradually, the sector started to bounce back and adjust to its new terms; as a consequence, becoming more organized and transparent. Many smaller developers also started understanding the essence of the business as the sector had become well-organized making it straightforward and structured.
ISSUES THAT DEVELOPERS WILL FACE POST- LOCKDOWN:
Mobilizing the labor force:
This is currently a critical issue due to the fact that most workers have migrated to their hometowns, who will certainly not be willing to come back at least until after the lockdown is officially concluded. Therefore, the availability of labor remains a huge issue. This problem particularly affects the smaller and mid-size developers more compared to the well-established developers.
Procurement of building-materials:
This is another major problem that has been inflicted by the pandemic. Although the government has policies in place to provide relaxation for the Union Territories, the sudden surge in demand may increase the delivery time for building-materials causing delays and an increase in prices.
Onset of Monsoon:
The monsoon season will arrive by the beginning of June and the construction activities will slow down considerably. By the time the labor force is mobilized, and the required materials are available; the monsoon will be here, and the work will be halted again. This means that builders can only essentially start construction by the end of September 2020. This creates a huge gap of about six months for the work to restart since the lockdown began.
Decrease in Demand:
Due to the pandemic and the overall economic breakdown, the customers might only prefer flats that are already constructed over the ones that are under construction. Therefore, all the projects that are under construction will see major decline in sales and in turn, the income. This may mean that the market price of apartments – especially the ones under construction may have to be reduced.
WHAT NEEDS TO BE DONE BY DEVELOPERS AND THE GOVERNMENT:
The secretary Ministry of Housing and Urban Affairs has already indicated that the government is in the process of formulating guidelines for the real estate industry. We will have to wait and see how the government proceeds.
Relaxation in Banks Lending to Builders:
The banking sector has to relax their lending norms and provide loans to the projects that are completed in terms of civil work and only require some brick work and finishing. If soft loans are provided in such cases, the builders can complete the construction of their respective sites and hand possession to the customers so that the revenue can be recovered, and the loans can be repaid without any problems. This will immensely help the builders to finish establishing their buildings and consequently selling their apartments.
Extension of project completion time line in RERA:
The government has to be proactive in terms of allowing a year-long extension to all projects that are registered under RERA. This way, sufficient time will be available for the builders to generate resources in order to complete their projects.
Measures to go slow:
Developers should be advised to go slow and not increase their sale inventory. They should first finish construction for inventories that are presently open for sale. The developers may need to review these inventories and rework their sale strategy for completed projects. The target is to complete the construction of the incomplete projects that have been sold to some extent. The remaining projects that have not been opened for sale should be kept on hold. There will be a severe cash crunch in market due to slower sales in unfinished projects. Therefore, the expenditure should be planned logically and sensibly according to the phase of construction.
Dr. K.S. Chandrashekar
Ex Chief Town Planner DNH and Real Estate Professional
Dr. K. S. Chandrashekar has been a central government officer and an expert in project management. He has prepared multiple regional and master plan for the UT of Dadra & Nagar Haveli, during his stint as Chief Town Planner and Ex Officio Joint Secretary (Urban Development). He also holds expertise in preparing the Development Control rules and has executed several infrastructure projects. In addition, he held several senior posts – Chief Executive Officer of District Panchayat, Chief Officer of the Municipality of Silvassa and Joint Secretary (IT), Director of Operations for a real estate company in Mumbai to name a few. He currently runs his own company, executing real estate projects in Silvassa and also advises developers on real estate management, including but not limited to feasibility studies.