[ecis2016.org] While the government is likely to announce more support measures in the wake of the Coronavirus pandemic to help the struggling economy, developers will also have to devise their own respective strategies to survive
If past economic turbulences are any indication, real estate developers in India may take a long time to recover from the shock caused by the Coronavirus pandemic and the subsequent lockdown to contain the spread. India initially imposed a 21-day lockdown from March 24 to April 14.
You are reading: How can India’s builders cope in a post-COVID-19 world?
(The lockdown was then extended till May 3, keeping in the rise in infections. As on April 15, 11,439 coronavirus infections were reported in India.)
The sector has been struggling to recover from after the effects of demonetisation, the launch of the Real Estate (Regulation and Development) Act (RERA) and the Goods and Services Tax (GST) regime.
COVID-19 lockdown: Impact on real estate
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The government first imposed severe restrictions on the movement of its 1.3 billion people, by imposing a 21-day lockdown, starting March 25, 2020. It the extended it till May 3, as number of infections continued to increase. The lockdown has brought most activity in the country to a grinding halt, forcing thousands of daily wage-earning labourers who lost their incomes overnight, to leave major cities on foot. Even as the government mulls sealing-off contagion hotspots and easing restrictions in other parts of the country to lessen the economic difficulties, it may be a long time before construction sites could be opened for business.
“Due to the lockdown announced on account of the COVID-19 outbreak, both construction and sales activity have come to a complete halt, across the entire real estate sector. On several sites, construction labourers have gone back to their home towns. Even after the lockdown, activity will only recommence gradually, which will cause project delays of anywhere between four and six months at the least,” says Sharad Mittal, CEO and head, Motilal Oswal Real Estate Funds.
The government and the RBI have already launched several COVID-19 relief measures, in the form of a loan moratorium and fresh liquidity. The real estate regulatory authorities are also coming forward to announce relief measures, by waiving penalties on project delays caused due to the outbreak. While the government is likely to announce more support measures to help the struggling economy, developers will have to devise their own respective strategies, to survive in these challenging times, which former RBI governor Raghuram Rajan terms this as the greatest emergency the Indian economy has faced since Independence.
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“The global financial crisis in 2008-09 was a massive demand shock. Nevertheless, our workers could still go to work, our firms were coming off years of strong growth, our financial system was largely sound and our government finances were healthy. None of this is true today, as we fight the Coronavirus pandemic,” said Rajan.
“Nobody is powerful enough to fend off unwelcome events. They will affect us no matter what. Let it come and go without personalising, resisting, or identifying with it and eventually, it floats away,” says Bryan E Robinson, Professor Emeritus at the University of North Carolina at Charlotte. Builders can draw valuable lessons from the above advice. They should let the outbreak run its course and follow the guidelines, as they come.
“Governments, businesses and communities are facing up to the reality of COVID-19. The short-term impact on economic growth, business activity and individual behaviour, are undeniable. While the current consensus is for a rebound in the global economy in H2 2020, the exact trajectory is unknowable. We, therefore, suggest a scenario planning approach, rather than betting on any bold predictions,” said global property advisory firm JLL, in a recent report.
By postponing their reactions to the Coronavirus-induced difficulties, builders should adopt a ‘wait-and-watch’ approach, until further action is required. For example, a decision to sell unsold stock at lower prices may not be a great idea, when it makes up for a large part of your assets, as this stock may help you in future when normalcy is restored. Similarly, just because moratoriums are available, availing of them should not be a priority, as long as you are able to repay the loan. As sentiments play a major role in the real estate sector, the lack of buyer interest has a major impact on liquidity in the sector. With developers lacking liquidity in this capital intensive sector, predicting negative outcomes and acting accordingly, may only prove more detrimental for developers.
FAQs
How has the Coronavirus impacted real estate developers?
For real estate developers, the Coronavirus pandemic and resultant lockdown, has resulted in freezing of construction work, unavailability of labour, shortage of liquidity and lack of interest among buyers.
When will the global economy recover from the Coronavirus pandemic?
The current consensus is that the global economy will not rebound any time before H2 2020.
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Source: https://ecis2016.org
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