[ecis2016.org] While the Coronavirus pandemic has affected all asset classes, real estate may emerge as a sought-after option by investors and end-users alike, after the lockdown ends
Following the Coronavirus outbreak, what seems to be inevitable, is that the world as we know it will no longer be the same. Every single sector – manufacturing, construction and services – will have its own trials and tribulations. The first salvo of the stimulus response to the pandemic, has already been fired by the union government. Globally, state loans, income subsidies and tax deferrals, are the most common fiscal packages being offered. The government of India and the central bank too are doing the same, by infusing liquidity into the system.
The RBI governor has already cut the reverse repo rate by 25 basis points to 3.75%, while keeping the repo rate at 4.4%, in its emergency measures to provide more relief to an economy that is fighting the fallout of the COVID-19 pandemic. The Reserve Bank of India (RBI) has brought down the LCR (Liquidity Coverage Ratio) requirement of banks to 80% from 100%, giving more liquidity to banks. It has also announced a Rs 50,000-crore special finance facility, to be provided to NABARD (Rs 25,000 crores), SIDBI (Rs 15,000 crores) and NHB (Rs 10,000 crores). The surplus capital will, hopefully, help refinance commercial and housing finance banks, to infuse liquidity into the market. Earlier, in March 2020, the RBI cut the repo rate by a massive 75 basis points, while finance minister Nirmala Sitharaman had announced a mega economic relief package worth about Rs 1.7 lakh crores.
The economic package announced by the central government is expected to benefit 3.5-crore registered construction workers. Accordingly, the state governments should also take necessary steps, to utilise the cumulative funds of Rs 31,000 crores for the welfare of these construction workers, who are severely impacted by the economic disruption due to the lockdown.
Force majeure clause under RERA
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In addition to the above, invoking the ‘force majeure’ clause with respect to COVID-19, under Section 6 of the Real Estate (Regulation and Development) Act (RERA), will provide developers with extension of project completion timelines and exemption from penal charges, in case of any default. The government has further provided a three-month moratorium on all term loans, including home loans, by financial institutions. This will alleviate short-term liquidity concerns and help developers, as well as home buyers, to survive in these uncertain times.
While we need to be cautions, there is a silver lining beyond these dark clouds. We expect the residential market to stabilise in the second half of the year. Strong pent-up demand, combined with rationalised pricing and able support from the government, will be crucial for the recovery of the residential sector. Technology will become more pervasive. A lot of engagement and interaction has to be planned via remote channels and we have to reimagine the new normal.
Digital channels such as AR/VR (augmented reality / virtual reality) will help in creating visual depiction of projects for new inquiries. A constant chat support via online chatbots, will also prove to be helpful during this time. The new guidelines even allow construction activities to resume, as long as the workers reside inside the site premise and guidelines pertaining to hygiene are followed stringently. As per a recent McKinsey report, companies need to increase communication, balancing the needs of the business, with expectations and morale, so that employees know that their well-being is being taken care of. This, in particular, needs to be borne in mind, above all other considerations, if the sector has to revive.
Real estate market after COVID-19
At the same time, we also need to monitor leading indicators of how and where the pandemic is evolving and conduct scenario planning using both, epidemiological and economic inputs. We need to think about the next steps to deal with COVID-19 and learn from the recurrence of the virus in Korea and China.
The stock markets have lost almost 10,000 points in a month’s time. All over the world, equity indices are nosediving. Crude oil is touching new lows. Almost all commodities are at an all-time low. Despite the ongoing turmoil in the country, rates per sq ft for residential real estate across branded players have not seen such volatility. Only gold, as a safe haven for investments, has been skyrocketing. With prices hovering around Rs 46,000 per 10 grams, how many of us are willing to bet on gold?
A 2019 report by Bain & Company, estimates that around 40% of India’s population will live in urban areas by 2030 and will account for more than 60% of India’s total consumption. While new project launches are being staggered by the developers, the available ready-to-move-in inventory will continue to see interest, even during the ongoing lockdown period. Even if the Coronavirus pandemic pushes real estate deadlines by a couple of months or years, the impending real estate boom is inevitable.
(The writer is president – residential business, Embassy Group)
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