A rebound in India’s long-troubled property market is set to be disrupted by a resurgence in Covid-19 infections, with a wider economic effect expected to weigh on home buying trends and developer financing, analysts said.
However, the developers hope the impact will be short-lived as they remain confident the industry has the potential to continue growing this year despite the setback.
“The real estate sector has seen a period of recovery, which is likely to be derailed by the current pandemic wave,” says Ajay Sharma, managing director of valuation services at real estate consultancy Colliers India.
India’s real estate sector is the second largest employer after agriculture and is expected to grow to $1 trillion by 2030 from $200 billion in 2021, according to the India Brand Equity Foundation.
However, the market, which accounts for about 6% of the country’s gross domestic product, has weathered a difficult past decade.
For years, the industry has struggled with high interest rates, which have made home loans more expensive and deterred borrowers. This situation was exacerbated by a crisis that hit the non-banking financial sector after the default of a major lender in 2018, leading to a cash crisis for the real estate sector which pushed a number of developers into bankruptcy.
The sector was initially negatively affected by the pandemic and the strict lockdown restrictions imposed by the government. But it rebounded strongly last year as Indians – including those not residing in the country – prioritized home ownership. Interest rates were slashed to record lows as policymakers tried to cushion the blow of the economic fallout.
“The Covid pandemic has played a catalytic role in fueling demand for housing, resulting in high sales velocity,” says Niranjan Hiranandani, vice chairman of industry body Naredco and managing director of property developer Hiranandani Group.
The number of properties sold across the country in the second half of 2021 stood at 133,487, the highest half-year figure since 2016, according to consultancy Knight Frank.
“The real estate industry has witnessed a paradigm shift in the attitude of end-users of residential properties…who, perhaps due to the uncertainty caused by the pandemic, have begun to turn towards security of home ownership,” said Shishir Baijal, President and CEO of Chevalier Franc India.
Sales were further boosted by measures taken by state governments to support the industry, including a reduction in stamp duty in Maharashtra, of which Mumbai is the capital.
But with the third wave of infections in India this year, brought on by the Omicron variant, the situation has cast a shadow over the real estate market. On Saturday, the country reported 268,000 new daily cases over a 24-hour period, the highest figures since its second deadly wave which peaked in May last year, according to figures from India’s health ministry.
“I agree that in the short term we will now have some bumps in the road because of Omicron and later on there will be a number of issues related to funding,” says Abhijeet Pai, co-founder of Gruhas Proptech, an investment company. .
“But we are a country of 1.3 billion people and a lot of people are still buying their first or second home. Omicron is a temporary problem.
The momentum in the real estate sector will continue this year and Omicron will have “a moderate impact on economic activities”, Mr Hiranandani said.
However, the resurgence has already prompted economists to lower their economic growth forecasts for India.
Japanese investment bank Nomura cut its GDP projection for India for the first quarter to 3.2% from 5.2%, but says it does not expect the impact to last. hold for a long time.
“We expect higher caseloads, but assume a shorter duration for the third wave, which should mean the economic damage is contained in the first quarter,” says Sonal Varma, Nomura’s chief executive and economist. Chief for India.
Still, it’s too early to predict what kind of effect the spread of the variant might have on the real estate sector, some analysts say.
“It remains to be seen to what extent, if any, the new Covid-19 Omicron variant [affects] real estate business,” says Anuj Puri, Chairman of Anarock Group, a Mumbai-based consultancy. “The outlook for the housing sector looks generally optimistic in 2022.”
However, Mr Puri said “the renewed sentiment in residential real estate during the worst times of the first and second waves relied heavily on policy support”, which included interest rate cuts, duty cuts stamp and tax benefits on cheaper housing.
That means homebuyers and the industry will be looking for more government support this year, he says.
With Prime Minister Narendra Modi’s government’s annual budget due to be presented on February 1, many industry insiders are hoping it could bring more support to the sector.
“For home buyers, the government should increase tax incentives on home loans,” says RK Arora, president of property developer Supertech. “Amid the fear of this fast-spreading Omicron, any additional tax incentives for first-time home buyers will go a long way to further spur demand, which has started to rise.”
He also wants New Delhi to take steps to alleviate the financing problem in the sector, which is an ongoing challenge affecting especially small developers.
“The recent debt crisis in some of the major non-bank financial companies has hurt the real estate sector, which was already struggling with a shortage of liquidity,” Arora said.
Besides the rapid spread of Omicron, other factors could hamper the real estate sector this year.
“Now the critical questions are whether house prices and interest rates will start rising next year and whether that will lead to slower housing growth momentum,” says Rajani Sinha, Chief Economist and national director of research at Knight Frank. India.
The Reserve Bank of India is expected to start raising interest rates this year to control rising inflation, which would make home loans more expensive and increase the cost of finance for developers.
Meanwhile, house prices in India have stabilized in recent months, after falling in recent years, Ms Sinha said.
However, rising raw material costs and spending on land and labor are expected to drive house prices higher this year, developers say.
“As far as prices are concerned, the base land cost is now higher, in addition to the increase in statutory and material costs,” says Christina Roach, director of Bengaluru-based developer RBD Shelters. “Increasing construction costs will cause prices to rise.”
One of the main hurdles builders face is securing labor after many workers fled Indian cities and returned to their hometowns during the initial nationwide pandemic lockdown. was applied in 2020. Many did not return.
“The pandemic has posed a number of challenges, but one of the biggest has been delivering projects on time, which is mainly due to the unavailability of manpower,” says Ms. Roach.
She remains optimistic about the outlook for 2022 and expects the country to see “strong demand for high-quality development at the right price”.
“There is an increase in buyers’ appetite for owning a home rather than staying rented,” says Ms Roach.
Sarthak Seth, director of marketing at Tata Realty and Infrastructure, said that “prices are likely to increase as the cost of raw materials also increases, leading to price revisions for several projects under construction.”
But despite the challenges and the short-term threat from Omicron, he is confident India’s property sector has finally taken a turn, which he says has been helped by the pandemic, as people seek larger properties due the trend towards working from home.
“At Tata Housing, we achieved 120% of our targeted revenue in the financial year April 2020 to March 2021 and expect to maintain the same momentum in 2022,” Mr Seth said.
“The demand for larger spaces, more bedrooms, open spaces and green areas is on the rise, which should also boost the sector this year.”
Updated: January 16, 2022, 7:46 a.m.