Slump In India’s Housing Sector Caused By COVID-19, Recovery Prolonged Until 2022

The property sector which accounts for around 6 or 7 percent of India’s annual national income and is the second-largest employer after agriculture has been badly hit by COVID-19. With every type of property transaction showing a decline, experts now believe that the recovery for the sector has been postponed for quite some time.

Almost all sectors of business have suffered because of the pandemic outbreak but India’s real estate has suffered the worst blow as it had been looking forward to a period of sustained recovery in 2020 after three years of business disruptions because of demonetization, goods and services tax, and other regulatory changes. The first two months began promisingly but after March 2020 the business was brought to near-halt because of the lockdown.

Hopes that there would be some recovery in 2021 also turned out to be in vain as the second wave of the virus crippled the country. According to a report from leading accountancy firm KPMG, the overall loss incurred by the sector since the COVID-19 outbreak in India is estimated at around $13.6 billion which has put developers into a liquidity crunch. Experts now believe the sector will only begin to recover in 2022.

Talking about the residential sector’s decline, Prashant Thakur, the head of research at ANAROCK Property Consultants, told Sputnik: “Although the data for the April-June quarter has yet to be collated, what we can already see between the two months is that there is more than a 50 percent fall  in residential sales across the top seven cities compared with the previous quarter.

“Undoubtedly, the second COVID-19 wave has been more devastating than the first, crippling the healthcare system all around. Moreover, to stall the rise in cases, there have been localised lockdowns in most top cities which has affected site visits and thereby residential sales,” he added.

India’s housing sector, which was hoping for a recovery after the first wave of COVID-19, was hit by the second wave as residential demand slumped by more than 40 percent in the first half of this year. According to a report by ratings agency India Ratings (Ind-Ra), demand is expected to be low until the situation improves.

The unsold inventories have also increased in number during the period. According to a report from Liases Foras – one of India’s top property analytics firms – unsold inventories have gone up so much that the number of quarters required to clear them have increased from 15 at the end of last year to 19 at the first half of this year.

Rakesh Yadav, chairman and founder of property group, Antriksh India, told Sputnik that the second coronavirus wave has adversely affected all the sectors including property – sales have dipped by 25 to 30 percent in the quarter from April to June.

Niranjan Hiranandani, the national president of the National Real Estate Development Council (NARDECO) told Sputnik: “New launches have practically ground to a halt; site visits in person are not possible and not every home seeker wants to order their dream home through virtual means. In states such as Maharashtra, the cut in stamp duty rates played a major role in boosting sales from September 2020 to January 2021 and refusing to extend the cut has visibly affected sales. Based on media reports and also what members of NAREDO have said, the impact will differ across sub-sectors by anything from 5 percent to 45 percent.”

As far as the commercial sector is concerned, a report by Cushman and Wakefield, the commercial property agency, estimates that net leasing of office space has fallen to 3.5 million square feet in the quarter from January to March 2021 from 7 million square feet a year earlier, mainly because people have been working from home during the pandemic.

Assessing the impact of the pandemic on commercial real estate, Thakur said: “There was some improvement in the first quarter of 2021. However, with the second wave of coronavirus in April to June, there will be a negative effect. Most technology businesses have extended the work from home option and are again in wait-and-see mode.”

Industry data and ANAROCK Research reveals that more than 7,400 leases spanning approximately 90 million square feet will come up for renewal in 2021 throughout the top six commercial real estate hubs – Bengaluru, Mumbai, Pune, Chennai, Gurugram and Noida. This year has by far the largest number of lease expiries compared with the next two years – 2022 and 2023.

Because of the lockdown and curfews, people are not visiting shopping complexes so retail mobility has also declined by 55 to 60 percent across India.

Talking about the sector’s recovery, Thakur said: “Technology sectors went on a hiring spree in 2020 and 2021 because of massive business accruals. To accommodate these employees in the future we expect demand for office space to grow as there is a gradual return of employees and the adoption of hybrid workplace practices. Office demand is also expected to gather momentum from 2022 thanks to robust hiring by large corporations.”

Yadav believes that, just as demand increased soon after the first wave of COVID was over, so it is expected after the situation comes under control this time. He said: “We can expect complete recovery next year but only then during the third quarter (October to December) as the festive season helps to mitigate the losses.”

However, the property sector has always come up trumps whatever horrors have been thrown at it, so it would be fair to bet that, because of the security provided by the vaccination drive and with the support of the government, the sector will start recovering from the second quarter of 2022.

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