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Just like any other business, Indian real estate is reeling under the impact of the Coronavirus pandemic, with demand and supply indicators at an all-time low. According to Housing.com data, only 19,038 units were sold in India’s prime residential markets during April-June 2020. On the supply side, only 12,564 new units were launched during the three-month period, when cases of the virus infection spiked dramatically in India. We look at the problems faced by buyers, while buying property in 2020, in this changed global scenario.
The spread of the COVID-19 virus has, however, reinstated investors’ faith in real estate, by highlighting the vulnerability of other asset classes in an unstable scenario. Resultantly, more and more people are actively searching for options in the housing market – a segment that has been able to retain some semblance of normalcy despite the severe setbacks. This is evident from the fact that property search traffic on Housing.com surged by 37% annually during the June quarter this year, as compared to the same period the previous year.
The COVID-19 pandemic may push renters towards adopting a more considerate view towards home ownership, amid an all-time low interest rate regime. Housing loans can currently be availed at leading banks in India at an annual interest of 6.95%. While buyers today are more likely to make property investments, this is easier said than done. We examine why.
Problems faced by new buyers in 2020
Site visits remain risky amid COVID-19
Although developers are helping buyers to select properties online, visits to the actual site are kept to a minimum, to comply with social distancing measures put in place to counter the virus’ spread. Developers are also careful and are offering site visits only to buyers who they think will make an immediate investment. This is why buyers may have to pay some kind of earnest deposit, to make their intentions clear before developers allow personal visits to the site. However, this proposition is not acceptable to many.
“Even though virtual tours do give you a good idea about a property, it is quite hard for a buyer in India to commit to the purchase decision, without making a physical visit. Since home purchase decisions have to be 100% right, because of the amount involved, the buyer would not like to take any risks. This explains why any buyer will not commit to a purchase, without making a site visit,” says Sanoj Kumar, a Delhi-based real estate broker. In some other cases, despite their interest, buyers are delaying site visits because of the risk factor. “Despite it being a buyers’ market right now, buyers do not really have the freedom to act as they would like,” Kumar adds.
In the secondary market, too, sellers refuse to entertain buyers, unless they are assured of some genuine interest by way of token money payment, at least. “Touching of surfaces is an integral part of property inspections in India. The seller will have to diligently disinfect the property, after each visit. This is just one part of the process. A lot of preparations are required, to host buyers. Sellers are not willing to go through that kind of trouble, unless they expect positive results,’” says kumar.
Property-related paperworks demand buyers to make multiple visits to multiple places, the increased intervention of technology in the entire process notwithstanding. This work increases manifold, if one is using housing finance to complete the purchase.
A large part of the process can be completed online – you could apply for a home loan and get your application accepted online; you could apply for property registration online. Nevertheless, the buyers’ physical presence is needed for several processes. For example, right before the bank grants the loan, the borrower will have to make a visit to the home branch, to complete the formalities. The same is true of property registration. In most cities, you do not have to visit the sub-registrar’s office, to get the forms or make payments. However, for the final registration, the buyer and the seller, along with two witnesses, have to visit the sub-registrar’s office.
“It is nothing but a pain, to gather so many people and visit the sub-registrar’s office, knowing fully well that you are exposing yourself to risks. That is why sellers in the secondary market are staying out. Of course, the concerns on lower valuation of property also act as a major dampener,” adds Kumar.
Problems faced by existing buyers in 2020
Project delays expected
Many had already invested in real estate before the COVID-19 outbreak. For such people, the ongoing crisis may have an adverse bearing on completion timelines of under-construction projects. Moreover, it may be financially stressful to deal with the double burden of EMI and rent payments, at a time when there is no job security across sectors.
Considering the restriction on construction activity and labour issues, the government has already said that the timelines of housing projects across India be extended by one year. So, buyers who were expecting the delivery of their homes in, say, 2021, have to now wait for at least another year, to get the keys to their homes.
“Even after the restrictions pertaining to construction have been largely lifted, there is a severe labour crisis in big cities, after the mass exodus witnessed during the phased lockdowns in the country. This is putting pressure on developers. On one hand, there is not enough manpower to carry out the construction. On the other hand, they now have to spend more to build, as the compliance level for safety has increased manifold in the wake of the virus’ spread,” says Brajesh Mishra, a Gurugram-based lawyer, specialising in property law. Cash-starved builders may find it extremely difficult to deal with the situation, even if you consider various support measures that the government has announced for them, so far, adds Mishra. All factors considered, project timelines may stretch for much longer than expected.
Problems with the home loan EMI moratorium
Amid this, buyers paying EMIs along with rents are under tremendous pressure. “While the RBI has announced an EMI moratorium for the benefit of the buyers, this is just like delaying a bad situation. Once the six-month moratorium period is over, the borrower will have to pay all the EMI, along with increased interest. Purely from a monetary point of view, this support measure is not going to be as helpful as one would like to think,” says Kunal Kishore, a 29-year-old media professional, who purchased his maiden home in 2019, in a Noida-based project. Kishore, who has opted for the moratorium, currently stays in a rented accommodation in Delhi along with his wife Meeta Kishore.
“As I am the sole earning member in my two-member family, it is quite difficult to deal with the monetary pressure staring at us, especially since we also had to take a pay cut,” Kishore adds. His company, a leading English newspaper, recently announced a mandatory salary cut of between 10% and 50% for its employees across the board, citing loss of business, because of the Coronavirus situation.
Paying rent during COVID-19
In spite of its drawbacks, the EMI moratorium still provides some breather to borrowers who also have to pay for their rental accommodations. “Even though states have been asking landlords to show leniency and not pressure tenants for rent payments, one cannot overlook the fact that many landlords will not have the option to show that kind of largesse. A large part of landlords in Indian cities, for instance, depend entirely on their rental incomes for their livelihoods. They cannot be expected to let go of their only income,” says Asha Bhasin, a 67-year-old widow, who lives in a DDA flat in Delhi’s Mayur Vihar and has part-rented her 2BHK home.
Is Aarogya Setu app a must while going for site visits during COVID-19?
Buyers in India should install the Aarogya Setu app before they go for site visits, as sellers may deny access if your virus exposure status is not clearly known to them.
What is a virtual tour of property?
Virtual tours enable buyers to take a visual walk-through in a home that is available for purchase.
What is the EMI moratorium?
An EMI moratorium means you can stop paying the EMI for now, but you have to pay it later, along with the accrued amount.