Explained | Will COVID-19 vaccine be the booster shot that real estate sector needs?
Real experts say it may take 12-18 months for the market to bounce back. The first segment to see an uptick will likely be the rental market after offices reopen and people return from their hometowns.
India may approve a coronavirus vaccine over the next few weeks and an estimated 300 million people could be inoculated in the first round, the government has said. The possible rollout of the vaccines has raised hopes but it remains to be seen if it will improve the confidence of homebuyers and office occupiers, leading to a turnaround in the real estate sector.
A lot is riding on the vaccine which is expected to help life and the economy return to normal. But what does it mean for the virus-battered real estate sector? Will a vaccine revive demand? Will it encourage homebuyers to make quick decisions? Will the people who have been working from peripheral locations or from hometowns return to cities, resurrecting the rental and office market? Will more people step out to view properties? And finally, how will property prices react?
Real estate experts warn against counting on an immediate revival in the market and say that it may be another 12-18 months before the sector begins to see a turnaround. It will be a gradual shift over the next 12 to 18 months. It’s not as if the entire country will be inoculated in the next few months, they say. It will be the rental market that will pick up first as people will return to rejoin work in cities as offices gradually enhance capacity.
“It (the vaccine) will certainly not be an all-pervasive panacea. The real estate sector may continue to feel the heat for an extended period and some trends foreseen during the pandemic are here to stay,” Anckur Srivasttava of GenReal Advisers said.
Changing preferences here to stay
The real estate sector has undergone a sea change in the last nine months. The pandemic accelerated the pace of digital transformation. Project discovery for buyers started happening online and developers began to offer virtual tours and interactions.
JLL’s Homebuyer Preference Survey released during the pandemic said that 91 percent of respondents wanted to buy a home. Additionally, 67 percent believed that buying a home was a necessity and not a luxury. The COVID-19 pandemic influenced short-term decisions, with job security cited as the biggest concern while buying a home.
The pandemic reset the significance of owning a house against living on rent. Study rooms gained importance as a large section of the population was forced to work from home. With health in focus, wellness amenities, too, ranked high.
Homebuyers wanted to mitigate the risk and were willing to pay a premium for properties from reputed developers, showing an affinity towards ready-to-move-in homes in gated societies and township projects.
Builders were ready to be flexible to allay buyers’ concerns in a fragile business environment, by offering flexible payment options with minimum upfront payment such as the 10:90 scheme.
Some state governments such as Maharashtra and Karnataka reduced the stamp duty rates to boost demand. Almost 60 percent of the properties on offer were in the sub-Rs 50 lakh and Rs 50-75 lakh categories.
According to JLL, COVID-19 can be credited as the catalyst for vital trends such as price rationalisation in larger markets, adoption of technology platforms to enable seamless buying and selling, while resetting the significance of "owning" a house.
Almost 50 percent of the homebuyers indicated a preference for a 2-BHK apartment with the size ranging from 800 to 1,000 sq ft or a 3BHK with a study. Homebuyers preferred a bigger home with a study, even if it meant moving to the suburbs and the trend is here to stay.
Spacious offices, work-from-home the new normal
Before the coronavirus outbreak, consolidation of office space was seen as efficient and cost-effective but work from home has led to occupiers looking at setting up multiple office spaces in micro-markets that cater to their existing employee demographics. This is expected to continue.
Corporates will now plan their space consumption keeping in mind factors such as flexibility in lease terms, minimum capital investment, rental costs, lower commute time for employees, last-mile connectivity and social-distancing.
Given the restrictions on the number of people in an office, tenants are evaluating alternate micro-markets where additional spaces are being created as part of the recent portfolio optimisation exercise undertaken by a majority of occupiers. This trend, too, is expected to last.
“Even if the vaccine is introduced in the next two months, the work from anywhere or the work-from-home culture is expected to continue for the medium term, which is for about a year. One will also witness a mix of work-from-home and work from the office. What this means is that even if the state governments have allowed 100 percent attendance in office, we have observed significantly less than 50 percent attendance and in the cities where the 30 percent attendance is allowed, we see 20 percent attendance in office currently. However, going forward in the mid to long term the work-from-home will disrupt office leasing up to 20 percent,” said Samantak Das, Chief Economist & Head of Research at JLL India.
Well certified buildings with a high wellness quotient will be in demand.
“The hot desking concept is here to stay but with modifications, which will include COVID-19 protocols,” he said, referring to the practice of an office desk being used by more than one person on rotation.
"In the mid to long term, we see substantial potential in data centres, health care, warehousing and e-commerce segments."
Vaccine and the impact on property prices
Experts say that there may not be any immediate impact on property prices after the vaccine is introduced as the level of unsold inventory is way too high.
“The total unsold inventory in the top 60 cities stands at almost 13 lakh units and in the top eight cities, it is 9.5 lakh units,” said Pankaj Kapoor, founder-managing director, Liases Foras. The overhang in unsold inventory was close to 50 to 60 months. During the pandemic, there had been a reduction of merely 4 to 5 percent. Therefore, builders were unlikely to increase prices after the introduction of the vaccine, he said.
“Even though the sales are more than new launches, offloading this inventory and reducing it to a sustainable level may take another two years. Therefore, a price increase is out of the question,” Kapoor said.
The commercial real estate segment probably has been hit the hardest with the focus on work-from-home but the vaccine may go a long way in arresting further vacancies, he said.
Demand to upgrade homes would remain as more people look for bigger homes, he said. As much as 25 to 35 percent sales would be in this segment but for the demand momentum to continue, developers and governments would have to continue with incentives and offers, Kapoor added.
During the pandemic, most developers absorbed indirect taxes such as GST besides stamp duty, Das said. They were keen on holding on to the prices to ensure that demand was sustained.
“Quoted prices have not increased but the ‘effective price’ has come down due to the flexible payment plans, offers by developers, waivers in GST and stamp duty etc,” Das said, adding it would likely continue after the vaccine as well.
Srivasttava, however, said prices by pedigreed developers that have received occupancy certificates could inch up. Projects likely to have a short gestation period or house on independent floors could command a better price once investors tiptoe back into the market after the vaccine.
Once the offices begin to reopen, people may return from their hometowns and look for rental accommodation again. The rental market will pick up first followed by the primary residential market. However, immediate change is not expected.
“Rentals have witnessed a dip of almost 20-30 during the pandemic and this may return to normal, almost pre-COVID levels if not more once the vaccine is on the ground,” said Ritesh Mehta, Senior Director & Head - West India, Residential Services, JLL India.
Will mortgage rates continue to remain low?
Mortgage interest rates hit a 12th all-time low heading into November. The Reserve Bank of India has reduced the policy rates by 115 bps during the lockdown to focus on growth, This has brought down interest rates significantly, giving a boost to housing demand.
Recently, Keki Mistry, Vice Chairman and CEO, HDFC Ltd, said home loan rates were the lowest in the last four decades and that the trend was likely to continue for another six to 12 months.
“For the next six to 12 months, the benign interest rates environment will continue. The growth in the economy and real estate has been sharp. The factors like the RBI infusing much-needed liquidity into the sector, various concessions given by the government, and the developers like the stamp duty relaxations have extended the best buying opportunity for the homebuyers. The trend will continue with the lowest interest rates regime,” he said.