The reverse migration of workers since the government announced the lockdown to contain the covid-19 outbreak is a serious issue for labour-intensive sectors such as real estate. Also, with basic support from the government for three months, many interstate migrants may not return to work anytime soon. This may be bad news for homebuyers as shortage of labour can delay the completion of under-construction projects. Ashwini Kumar Sharma asks experts how much delay this can cause and how covid-19’s impact on the economy and personal wealth of buyers will affect the sector, especially the residential segment
Impact will be severe if dearth of labour is prolonged Reduction in the availability of labour for project execution, together with the disruption in raw material supply chains, are expected to result in a slow-down in real estate construction activity. The Real Estate (Regulation and Development) Act, 2016 (Rera) provides for a one-year extension in project execution timelines, in case of events beyond the promoter’s control. So regulatory risks are reduced in case of a short-term disruption.
However, the ability and willingness of the migrant labour to return to work in an uncertain environment remains to be seen. Their decisions would be driven by the extent of pandemic-related fears, as well as ease of mobility after the lockdown is lifted.
In case the dearth of labour is prolonged, the impact on project timelines and costs could be more severe. Besides affecting profitability, the slowdown in execution will have a considerable impact on project collections. New sales will also be hit, given the increasing preference of homebuyers for near-complete and completed units. This adverse impact on inflows could further affect developers’ ability to execute projects, and may result in a vicious cycle.
--Shubham Jain, Senior vice-president and group head, corporate ratings, Icra
More workers may leave once the lockdown is finally lifted
The nationwide lockdown due to the covid-19 pandemic has definitely impacted the availability of labour. Real estate is a labour-intensive sector and any disruption in construction will have a direct impact on the market.
We have both skilled and unskilled workers coming from across the country. In fact, a significant number of daily labourers belong to rural areas. Some labourers had already gone home before the lockdown, while many are in labour camps of construction companies. Once the lockdown is lifted and interstate travel is permitted again, we fear that more workers may leave for their homes.
While the need of the hour is health and safety, a complete halt in construction could take a toll on the timelines of project completion. Under the current circumstances, we think that a delay of up to three months can be expected. However, in the larger scheme of things, this will not have any negative impact on the pricing or demand of real estate. While the impact on the sector would depend on the scale of the pandemic, we believe the recovery after the crisis would be strong and far easier than it will be for other sectors such as travel and tourism.
--Anurag Mathur, Chief executive officer, Savills India
Prices will stay depressed across projects for this period
The lifting of the lockdown will have to be communicated to migrated workers in an effective manner, which is a challenge, as different states are likely to have their own approaches to returning to normalcy. The transport system would also face obstacles at state and district borders. The demand for new homes may not pick up anytime soon, as households will take time to reconcile income flows with future payments
The real issue will be with projects that are in progress and need to be completed. We could have time delays of a minimum of five to six months from now, which will impact the schedules of builders. Companies too would be slow to start new projects because the supply chains involving getting access to construction materials like cement and steel will take time to work out.
Prices will remain depressed across all projects for this period, and it remains to be seen how builders manage their cost overruns, given that a lot of funds have been procured from banks through loans, which need to be serviced. With the moratorium being in force, companies would get some relief, but managing their finances will be a challenge.
--Madan Sabnavis, Chief economist, CARE Ratings Ltd
Delivery of most projects is likely to get delayed
The covid-19 crisis and the nationwide lockdown that has followed have led to most of the construction workers leaving for their home towns. Once we achieve normalcy, the situation of labour shortage may still persist and it can take around five to six months for the workers to return to their respective project sites. The long-term impact of this will be the late delivery of projects, as it is directly related to the availability of construction workers and supply of raw materials. We are expecting a delay of six months to a year, after the situation gets better.
The crisis has impacted the sentiments of customers who have already bought homes, as the delivery of most projects will get delayed. It will also be unfair to predict the behaviour of prospective buyers till the situation returns to normal. In spite of all the odds, the real estate sector, especially the residential segment remains the best investment option.
Currently, all of us are confined to our homes and are safest there. I am sure in the long run, the youth will prefer buying homes to other forms of investment. So far, we have fought the situation well and are hopeful that we will emerge as winners from this period.
--Satish Magar, President, Credai National
13 Apr 2020