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Three Ways To Assess Covid-19’s Impact On India’s Real Estate Sector
Bloombergquint.com  |  April 7, 2020

Sharad Dubey

The national lockdown to curb the spread of the novel coronavirus has stalled all businesses in India barring essential services. And activity in the real estate sector—among the top contributors to the nation’s economic growth—has halted ever since 1.3 billion people went under severe restrictions since March 24.

 

The sector, according to analysts and company executives, faces problems of three kinds:

 

  • Labour issues.
  • Impact on business and financials.
  • Impact on work.

 

The sector has been facing a liquidity crunch since payment defaults by Infrastructure Leasing & Financial Services in 2018, leading to a pile-up of unsold apartments. That, coupled with an economic slowdown, stalled a nascent recovery in the sector from the disruption caused by Prime Minister Narendra Modi’s cash ban and a stricter housing law. Finance Minister Nirmala Sitharaman announced the creation of a fund to provide financing to many stalled housing projects.

 

Here are three factors, which according to analysts and company executives, that are impacting the industry the most.

 

Labour Issues

 

The key ponderable for a large employee-based sector like real estate is what could happen to company margins if workers stay on payrolls, and how would companies get back the contract workers who have migrated back to their hometowns in the absence of work, companies said.

 

“The human resource is largely still at construction sites, and instead of keeping them in a ‘lockdown’ situation, giving them some activity will also keep them occupied—as also help avoid major economic losses as a result of stoppage of work at sites,” Niranjan Hiranandani, president of National Real Estate Development Council, said in a statement.

 

Irfan Razack, chairman and managing director of Prestige Estate Projects Ltd., concurred. He said that a small component of migrant labour among major property developers have gone back home, adding that a labour shortage won’t impact work.

 

“Geography plays a major role as most migrant workers come from Uttar Pradesh and Bihar,” Razack said. “Since trains have stopped running and state borders are sealed, migrant workers aren’t able to return. Hence, getting the labour back would not be a major issue once the lockdown is over.”

 

Other companies said they’re providing shelter and food for the labourers stuck at the sites.

 

“We have created a shelter for around 2,000 of our workers at various projects and discouraged them to travel back home during the lockdown by ensuring adequate food, water and sanitary supply at these shelters,” Kamal Khetan, chairman and managing director of Mumbai-based Sunteck Realty Ltd., told BloombergQuint.

 

Amit Sarin, chief executive officer of Anant Raj Ltd., a Delhi-based developer, said at their three construction sites, labourers have been asked to stay back where they’re being provided with food twice a day and medical attention with aid from local organisations.

 

Business Impact

 

Delays could run into several months for well-funded projects, the property consultancy Anarock said, adding that it could run into years for others. It said that nearly 4.66 lakh units across the top seven cities that were slated for completion in 2020 face high risk of delays, it said.

 

Residential sales, which in 2019 stood at approximately 2.61 lakh units in these markets, may now range between 1.70 lakh and 1.96 lakh units, it said. New launches may also witness a 25-30 percent decline during the same period to anywhere between 1.66 lakh -1.78 lakh units.

 

Razack of Prestige Estate said it’s impossible to analyse the impact of the current situation. While the hit on margins may not be severe, it will be felt, he said. Hospitality properties, he said, would witness outflows and no inflows, and developers like Prestige who work in these segments would be impacted.

 

Anuj Khetan, director of the Mumbai-based Vijay Khetan Group, said repayments for dues will be staggered and all affected stakeholders will have to come together to firm up repayment plans for a mutually accepted solution. The government must support with robust and effective measures to save the real estate sector from the current crisis, Khetan told BloombergQuint over the phone.

 

Road Ahead

 

Sunteck Realty’s Kamal Khetan expects demand to pick up soon after the Reserve Bank of India cut lending rates by 75 basis points last month. “Organised players will clearly have a vantage point to recovery,” he said, adding that Suntech Realty’s repayment schedule won’t be upset.

 

There won’t be a substantial delay in deliveries once work starts in full swing, Razack said, adding that demand is unpredictable. A weaker rupee may also revive demand among non-resident Indians, he said. “Lower returns from mutual funds and stocks would get people back to investing in real estate.”

 

Puri of Anarock while agreeing said that their Gulf Cooperation Council office is seeing a lot of interest following the devaluation in the rupee, as everything has become 10 percent cheaper.

 

Razack urged the government to “give oxygen” to the industry by giving it access to cheaper funding or delay liabilities by a year. “Work would commence on a full scale only after Diwali.”