Real Estate Market of Bengaluru Geared Towards Fast Recovery Post Covid-19

June 12th, 2020

In India, the coronavirus pandemic has affected the real estate sector, just as it has affected other key business areas. And yet, both the builders and buyers are hoping that it will bring them newer opportunities in the coming days. Although builders are quickly running out of cashand are unable to fund their projects, it seems as though they may have to offer freebies and other discounts just to get rid of excess inventory. The crisis has hit both the luxury housing as well as the mid-range segments and is forcing developers to not only defer payments but to offer protection plans against the virus as well.

Freebies and Other Offers

According to experts, while developers are looking to offer attractive pricing on luxury projects, they could choose to provide freebies when it comes to the mid-range segment, where the price lies between INR 1 and 1.5 Crores. However, decreased rates alone may not contribute as a motivating factor for buyers to invest in different projects. Builders may also need to chalk out plans to address the fears that buyers have of losing their jobs in the next two or three months.

So, developers may look to entice their investors by offering them freebies. Experts have also suggested that builders may need to think out-of-the-box to equip themselves with the cash that they need. For example, they could reduce the overall prices of the properties or even the cost of financing or mortgaging them. Additionally, they also suggest bettering existing tax structures.

Many builders are also trying to put in place several buy-back schemes wherein the builder would offer to purchase the property if the buyer were to lose his or her job by paying him additional interest at the rate of six percent or so. Another plan that builders may introduce is the 10:90 payment scheme. Under this scheme, buyers can pay 10 percent upfront when they move in, and the rest of the 90 percent in the next year.

So, in this way, we can see how builders are desperate for the money and are looking for ways to lure buyers into investing in their projects.

Delays in Executing Projects

The outbreak of the coronavirus has affected not only the builders and buyers but also the projects. So, there has been a 51 percent reduction in new projects and their launches. On a positive note, though, the RBI has decided to put off loan repayment for at least three months since the virus came into the picture. And now, the RBI has decided to put it off until the end of August, which is a big relief to the builders. The infection has set back the deadlines for completing the projects. So, the Government has decided to offer the builders more time so that they can work on their projects. Both these moves can help builders as they can execute and finish their projects.

The Impact of COVID-19 on the Real Estate Sector

Experts recommend containing the virus before it is too late, as they fear that it may have deadly consequences on the real estate sector in the country. As such, they have suggested that the virus could have devastating effects on the business in two distinct ways.

Impact on Labor

The real estate sector consists of a vast, diverse workforce,including both full-time as well as contract employees. And if companies choose to continue to pay their workers while losing their contract laborers, they may end up incurring huge losses. Experts have recommended that companies keeptheir laborers who work at the construction sites so that they can complete ongoing projects. They have also suggested that it could,in turn, help them avoid to a considerable extent the economic losses that tend to occur when there is no work.

Impact on the Core Business

The spread of the virus has had dire consequences on the real estate sector. Projects, even those well-funded ones, could end up taking months before they near completion. And the ones that have no adequate funding could take years to complete. Data gathered shows thatfive lakh units estimated to be completed by the end of 2020 could nowface delays. The same data also suggested that while there were around 2.61 lakh residential units sold in 2019, the corresponding figures now could stand at just 1.78 lakh by the end of 2020.

Similarly, hospitality properties willsee only outflows and no inflows. So, builders can take it for granted that business is going to be bad in 2020 as compared to 2019.

The Next Step

Although the virus has already done its job, builders are still looking towards a brighter future where they can move ahead with their projects in full swing once the pandemic subsides. In view of the same, the RBI has cut lending rates by 75 basis points. So, those builders who can organize themselves will be able touse the funds and finish off their projects. Also, with the Rupee weakening, there may be a sharp rise in demand for residential projects among NRIs.

Furthermore, the fall of the stock market amidst the pandemic has also given rise to investors coming back into the real estate sector. With the devaluation of the Rupee, there has also been a 10 percent decrease in the prices of the properties. So, there is still hope for the real estate business, and it can thrive even in these kinds of environments.

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