By Farshid Cooper
With the Covid-19 second wave raging across the country, we are once again faced with partial lockdowns and a slew of restrictions. This is having an apparent effect on the real estate market and delaying key property deals. While there were signs of a significant revival in the property market in the first quarter of 2021, we are seeing a momentary halt in an upward trajectory. We are likely to witness more truncated housing sales and scrapped/delayed property development projects in the months to come.
However, not all has been lost and there has to be a forward-looking sentiment because according to Knight Frank India, the residential real estate market in India has seen a steady rise in both sales and launches from January-March 2021. This is 44% more than the same quarter last year the report said. Also, launches were recorded at 76,006 units. Furthermore, the report said that Mumbai and Pune led the table in both launches as well as sales due to discounts in stamp duty charges.
Following are a few of the trends that will dominate the real estate market for the rest of this year.
Remote Working: The work from home trend is here to stay and people will continue to want more spacious homes in order to have comfortable home offices. Demand in tier 2 and tier 3 cities are expected to be slightly higher as remote working will continue to encourage people to buy houses in their hometowns. Low interest rates may also push people to buy homes in low-density, plotted developments that are located in gated communities and have well-managed infrastructure. However, credit stress among developers is expected to continue and distressed real estate may emerge as a separate category.
Low Home Loan Rates: Over the past 12 months, the RBI has cut interest rates and they now stand at historic lows. This has brought home loan rates down to as low as 6-7% in some banks. Both these trends have pushed previously unsure buyers to go ahead and settle on a home purchase. Home loan interest rates are currently at a record 15-year low. Coupled with the bottomed-out property prices and additional discounts and offers by developers, there are some very real savings to be achieved on what is usually the most cost-intensive investment in one’s lifetime. This trend is likely to continue throughout 2021.
REITs: Since 80% of the underlying assets in Real Estate Investment Trusts (REITs) are required to be operational as well as income-generating, these have emerged as one of the most viable investment options as compared to conventional property purchase. It has proven to be a workable way of diversifying an investment portfolio in a low-risk manner. Even though the pandemic has put them under the pressure of rental cash flows, a positive long-term scenario remains intact.
Availability of close-to-ready inventory: There are various options today in terms of close-to-complete buildings or ready-to-move-in apartments. These eliminate all forms of market risk, therefore proving to be a secure choice. Further on, the pricing of such properties is marginally different from those under construction.
Hence, while the second wave may signal another impending slump in the real estate market, there will be a recovery that is aided by digitization. All through last year, scores of property buyers and dealers adapted to online modes of communication and research. The digitization of the property searches/inquiries and negotiation processes continue to help in keeping the real estate market afloat until lockdown restrictions are eased.
(The author is MD, Spenta Corporation)