2020: Covid pandemic pulls the plug on realty growth, Govt, RBI initiatives boost demand.

By Prajakta Karnik

Real estate industry has been on a bumpy ride since the past few years mainly due to the various policy decisions taken by the government to regularize the sector. The Covid-19 pandemic has only tightened the noose around the industry, which came to an almost standstill due to the lockdowns announced by the Central and state governments to control the spread of the deadly coronavirus.

Year 2020 began on a positive note with developers expecting good sales after a gloomy 2019. However, the expectations were shattered after the country went into a lockdown mode beginning March 22, 2020, with all economic activities coming to a grinding halt.

“The real estate sector in India has been facing headwinds from the past few years. The situation became tougher owing to the Covid-19 situation across the globe. The uncertainty has brought the world to a standstill and India is no exception to it. The global economic slowdown had a negative impact on real estate demand in the country this year,” Credai National President Satish Magar said.

Construction activities were brought to a sudden halt in the second quarter between April and June due to the COVID 19 induced lockdown and the uncertainty over jobs and livelihoods robbed the market of its potential buyer-base leading to near zero demand, he added.

For the first time, the country witnessed mass reverse migration of labourers who went back to their villages fearing the spread of the virus. Lakhs of migrating labourers walked thousands of miles from the metro cities, especially those like Mumbai and Delhi, where the number of coronavirus cases were rising significantly.

“The real estate sector touched the lowest of lows during the almost three-month-long nationwide lockdown. Developers faced severe liquidity constraints and homebuyers lost a significant appetite to buy a property. Home sales and new property launches in 2020 suffered a great deal as the nation struggled to battle the pandemic,” Naredco Maharashtra President Ashok Mohanani said.

Property consultant Knight Frank India Chairman and Managing Director Shishir Baijal noted that in the beginning of 2020, the residential market was attempting to stand again on its feet after a spate of structural adjustments of previous 2-3 years, even as the commercial real estate segments of office, warehousing and retail were on a healthy growth trajectory.

According to the year-end data by property consultant Anarock Chairman Anuj Puri, the top 7 cities, including Bengaluru, Mumbai Metropolitan Region, Delhi NCR, Pune, Chennai, Hyderabad and Kolkata, saw total home sales of over 1.38 lakh units in 2020 against around 2.61 lakh units in 2019 - a decline of 47 per cent. New housing supply in 2020 declined by 46 per cent against the preceding year - from nearly 2.37 lakh units in 2019 to around 1.28 lakh units in 2020.

According to JLL India's CEO & Country Head Ramesh Nair, on an annual basis, overall launches across the top seven cities dipped by 31 per cent to about 95,000 units in 2020 as compared to about 1.37 lakh units in 2019. 

Tata Realty and Infrastructure MD and CEO Sanjay Dutt noted that the sector was caught in the worst stage of its cyclical movement in 2020 due to the pandemic. “Earlier, the sector suffered the impact of unsold inventory of over 30 months' as well as the implementation of RERA and GST and the NBFC crisis. The impact of this is so significant that even Tier 1 developer liquidated their assets to reduce debt,” he added.

According to industry experts, in the second half of 2020, as the country saw gradual lifting of the lockdowns and increased awareness about responsible handling of the coronavirus threat, consumers, particularly in the housing segment, have comeback with a renewed vigor.

The government's decision to invoke force majeure clause under RERA came as a major relief to the developers. However, many central ministers, including minister for housing Hardeep Singh Puri and commerce minister Piyush Goyal, kept advising developers to offload their inventories and not to wait for prices to rise.

In the meanwhile, the Centre announced stimulus packages like income tax relief for homebuyers under the Atmanirbhar 3.0 as well as stimulus measures Rs 18,000 crore additional outlay for the urban housing scheme to help complete real estate projects, were some of the positives for the sector.

The RBI also took steps to infuse liquidity into the system by reducing the repo rate to 4 per cent, reverse repo to 3.35 per cent, and cash reserve ratio (CRR) at 3 per cent. This helped renew the sentiment among homebuyers as home loans came down. Also, the Credit-Linked Subsidy Scheme (CLSS) for the housing sector got an extension until March 2021.

Apart from the moratorium facility, the RBI also allowed NBFCs to extend the date of commencement of commercial operations (DCCO) for loans granted to commercial real estate for an additional year, which acted as a breather for developers.

To boost the demand, Maharashtra, which is struggling to cope with the impact of coronavirus pandemic, slashed the stamp duty on housing units by 3 per cent from the current 5 per cent from September 1, 2020 till December 31, 2020 and from January 1, 2021 to March 31, 2021, the rates would be reduced by 2 per cent.

Following the suit, even Madhya Pradesh reduced the cess on stamp duty charged for registration of property to 1 per cent from 3 per cent in urban areas. Likewise, Karnataka also reduced stamp duty recently from 5 per cent to 3 per cent on properties costing above Rs 21 lakh.

“Initiatives like extended RERA deadline, allotment of Rs 10,000 crore to National Housing Bank, debt recast, loan moratorium, amendment in Insolvency and Bankruptcy Code were some of the relief measures for the real estate sector,” Assocham President Niranjan Hiranandani said.

House of Hiranandani Chairman and MD Surendra Hiranandani noted that the reduction in stamp duty charges in some states and varied offers during the festive season coupled with a rate cut surely boosted the buyer sentiment further.

Max Ventures & Industries MD and CEO Sahil Vachani said, “various measures announced by the government along with steps taken by developers and the industry, the worst seems to be over. In the last couple of months, the office space leasing has gathered momentum and will likely continue to gain traction in 2021.”

The year also witnessed work from home (WFH) culture, which negatively affected the commercial real estate.

“Businesses incurred losses due to lockdown, which forced them to renegotiate rentals which affected rental yield. The work from home trend was perceived as a potential risk to commercial real estate. But, with the government's unlock measures allowing offices to work at a certain threshold kept sentiments in check,” Azlo Realty CEO Krish Raveshia said.  

According to Kalpataru's Managing Director Parag Munot, even as the sector witnesses and upturn in buyer sentiment, it will also see consolidation as demand converges on quality realty from reputed developers with a track record of time bound delivery.

As the residential housing sales have picked up from the fourth quarter of 2020, the industry is expecting a V-shaped recovery for the sector in 2021.

As Sheth Creators HOD Marketing Hiral Sheth sums up, “the rise of the organized real estate developers and an increase in buyer sentiments is acting as catalysts propelling the sectors growth in the new normal. The coming quarters will be an exceptional buying opportunity for fence-sitters and quick-decision makers, which will accelerate the growth with more established players gaining increased market share in the post-Covid-19 world.”

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