Across the built environment of the Indian real estate the two question that are on everyone’s lips is about the recovery timelines and segment to recover first. Track2Realty finds this uncertainty about the possible recovery, or rather the lack of it, has also kept the fence sitting home buyers on the edge.
While the developers are calculating their financial closure & the execution bandwidth, the lenders are busy in their own cost & benefit analysis from an altogether different perspective of opportunity cost. The home buyers in this confusion are wondering whether the prices have actually bottomed out or there would be better opportunistic buying in the days to come.
A closer look at the market fundamentals nevertheless suggest that the recovery timelines and the catalysts would not be uniform across the sector. Forget the sector, in the same given city, and even the same micro market, the turnaround are subject to certain key fundamentals – ranging from the product & pricing to economic revival & job certainty in the market and stage of construction to policy direction in terms of the government’s infrastructure spending.
Everyone is nevertheless unanimous that the broken supply chain has adversely affected the execution capability of the developers. Even the projects with positive cash flow are today reeling with supply chain hurdles; and availability of man and machinery is as much challenging as the availability of money.
A candid Amit Modi, Director of ABA Corp categorically admits that their earlier calculation with respect to the developers’ better bargaining power with the suppliers had been off target. It has hence led to cost escalation as well.
“We thought that we will be having better negotiation space with the suppliers of steel and cement with ready stocks and lesser demand. That could have offset our increased cost on manpower. But it has rather been the other way round with cost escalation been a major challenge,” says Modi.
“It is not just my problem and supply chain is a systematic problem for the sector. But I do believe that nature does not leave room for a vacuum. Right now there is demand contraction and supply is not that great as well. But with the revival of demand things will improve. It will take another 2-3 months since Indian entrepreneurs are very capable,” believes JC Sharma, MD and VC of Sobha Limited.
Deepak Goradia, Vice Chairman and Managing Director Dosti Realty also agrees that COVID-19 pandemic has marginally impacted the smooth trading process and functioning of industries, and the domain of real estate is no exception. The global impact could lead to delayed decision making and capital expenditures by credible home buyers and investors. Although the instabilities in business cycles have a possibility of affecting the demand for commercial as well as housing space in the Indian property market, the domain is taking measures to optimistically revive from the crisis.
“For the market getting back to its usual momentum, it will take a while, but even during the lockdown period there was still a decent demand especially in the affordable and MIG housing segment. While most of the demand was largely end user-driven, there was a lot of interest from the investor segment as well given the volatility of the stock market. This is just a temporary phase and the Indian realty domain must brace itself with positivity and recover successfully as it has done in the past,” says Goradia.
KPMG in its assessment has said that the ongoing Covid19 pandemic is expected to keep Indian real estate subdued over the next 6-12 months forcing sector entities to contract operations, revisit planned developments, expansions, and investments. Notwithstanding the KMPMG assessment, the leading players are optimistic. They are nevertheless bothered with their challenges at multiple level – ranging from the input cartelisation to slowdown in the economy, and government impetus to state spending on the infrastructure.
If the recovery timelines are subject to the above defined factors, next comes the question of which segment would be the first to revive. There are two aspects that could lead to the revival of the given segment – one is the availability of the fund and the other is the demand dynamics. Logistics and warehousing stands out as the best case scenario of the revival, whereas office space would be muted for some time now. In the housing market, the demand drivers apparently are at the top end and the bottom end of the pyramid.
Most of the developers privately admit that the luxury housing has seen better traction in the recent times. Reasons are obvious: the luxury buyers are slowdown proof and recession proof and they are rather making use of the situation for the opportunistic buying. Moreover, the developers in this segment also have the room for renegotiation since the profit margins are on the higher side. The concept of wellness will also gain ground moving forward. Serviced apartments in the top cities will be witness to more in demand.
Similarly, the demand for the compact housing within the affordable budget has increased. Most of the buyers in the mid segment have learnt one important lesson out of the Covid-19 experience: It is better to go for a smaller house within one’s means than to be over-leveraged in an age of economic uncertainty and the job uncertainty. It makes more sense to buy an 800 sq feet apartment with 50% borrowed money than a 1200 sq feet apartment with 80% borrowed money.
Revival could be delayed but not denied since the market is slowly coming out of the avalanche of uncertainties. One thing that the Covid-19 has taught to both the builders and the buyers is to be realistic; understand the wants & needs; and be way of over leveraging. Market is on course to recover for those who are learning the lessons, but for the rest, it is time to exit.
Ravi Sinha
@ravitrack2media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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