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Countries across the world are busy fighting the Coronavirus pandemic while businesses are struggling to keep their workforce afloat. Uncertainty is widespread, in terms of jobs, career, finances, dividends, stocks or bonuses. This has also affected home buyers, as well as investors who were considering real estate investment before the disease started spreading. The lockdown has brought economic activity to a standstill, affecting consumption and income. Amidst all this, should one consider a property investment? While, the obvious answer seems to be ‘no’, there are many upsides to investing in a tangible asset right now.
Benefits of investing in real estate
Lending rates are at their lowest
The Reserve Bank of India had announced a cut in the repo rate, which will bring down home loan interest rates, as most of the banks have launched repo-rate linked home loan products. At present, the repo rate stands at 4.4%, the lowest ever. For those who have sufficient liquidity to invest, this could be a perfect time to strike a deal and get your home loan approved before things get back to normal.
Builders and property agents are desperate to clear their inventory, to generate liquidity and resume cash flows. Some of the builders are also offering refundable booking amounts, to lure home buyers. So, this can be a good time for you to negotiate a deal with your developer/agent. If you have already visited the property before the lockdown, you are in a position to make a decision when it comes to a ready-to-move project. For under-construction property, you can take a video walk-through or a 3D tour of the sample apartment. Also, understand the locational advantages, neighbourhood, amenities and facilities available around the project. Factor in the final price, only after taking a realistic approach and assuming that project delivery will be delayed.
Demand has dried down and new supply is no more entering the market, due to the lockdown. Once everything gets back to normal, it will take at least a month for real estate construction to gain pace. “Once the lockdown gets lifted, it will take time for developers to resume construction work, as most of the labourers have left for their home towns,” says Jaxay Shah, chairman, CREDAI National.
That means supply will take a little more time to pick up than demand. This can bring an upward trend in the property prices in the post-COVID-19 world, which means you may have to pay more than what you have to pay today, for the same property.
According to Niranjan Hiranandani, national president, NAREDCO, “If construction slows down once the lockdown is over, we may see ready possession homes attracting a premium.”
Real estate is the perfect asset class
Real estate is certainly a safe bet for investors and their interest is far from over. “Real estate will prove to be the perfect asset class in terms of both, regular income as also capital value appreciation. As of the past week, a segment of real estate developers have been getting investor queries about buying pre-leased properties or residential properties, which have high demand for being given on rent,” says Hiranandani, who is also president of ASSOCHAM and co-founder and managing director, Hiranandani Group.
Once the lockdown is over, experts expect higher returns from the market, which certainly makes this a perfect time for investors to sign the deal. “We are hopeful that the expected ROI for the realty sector could be seen at approximately 1.7x (almost 2 times) for residential and 1.5x for commercial, within three to five years’ time. The Indian rupee has witnessed depreciation, owing to the downfall of the global economy. This might attract foreign investment to India in the coming months,” adds Shah.
If you have made up your mind that real estate investment is the way to go, you should consider the following, to make your decision more balanced:
1. Project delays are imminent
With India under a complete lockdown and construction workers returning home, project delays are unavoidable. “The real sector, especially the residential segment, has already been struggling with project delays, regulatory changes and low sales for the last few years. Given the Coronavirus pandemic, construction in incomplete projects has come to a complete standstill across the country. We foresee a delay in delivery of projects on account of supply disruption, due to the virus outbreak and liquidity crunch,” says Shah.
2. Liquidity can become an issue
With almost no sales happening and no foreign funds at hand, developers will struggle to pick up the pace, once the lockdown ends. The investment will start flowing in gradually and so far, the government has not announced any bailout package for the sector, which is a concerning issue.
“The injected liquidity of Rs 3.74 lakh crore (by the RBI) along with the three-month moratorium on all term loans by financial institutions, will alleviate short-term liquidity concerns and help developers, as well as home buyers. However, these are short-term measures. The sector is still cash-starved, along with other financial commitments which need to be made like payment of EMIs, among others,” adds Shah.
3. Uncertain economic growth
It is not just India which has seen drastic drop in economic activity – western countries have also been impacted, because of the health crisis. With such large economies facing turmoil, Indian markets, which are dependent on foreign economies and currencies for investment and equity funding, are bound to suffer. The unemployment rate is expected to touch 15% in the United States, while India is staring at 9% joblessness to start with. With no jobs in hand, it would take a lot more than liquidity infusion, to kick-start economic expansion.
“Since the global impact could potentially result in delayed decision-making, curtailed capital expenditures could affect portfolio decisions in the short term. From a long-term perspective, the demand will remain stable and forward looking,” says Anshuman Magazine, chairman -India and south-east Asia, CBRE.
4. Price rise may not happen at all
While there are speculations that property prices may see an upward trend after the lockdown is over, expects differ. “Initially, post the pandemic period, investors will want to exit their investments. So, prices in this segment (i.e., investor-held property) may dip. Some organisations facing liquidity crisis may opt to undercut existing price points. However, once the initial period ends, price points will return to levels that we had seen before the pandemic struck,” says Hiranandani.
|You may get a better deal, through negotiations.||Employment market is uncertain. Layoffs are happening across industries.|
|Home loan rates are at the lowest.||You may run out of liquid cash.|
|Real estate is the safest investment right now.||Project delays are imminent.|
|You can opt for deals with 100% refundable booking amount.||You may have to make a decision, without visiting the site.|
|Once the lockdown is over, you can rent out the property to pay-off the EMI.||Price rise may not happen after the crisis. Under-construction property will burden your finances.|
Real estate after the COVID-19 pandemic
While most of the people are expecting business losses once the lockdown is lifted, experts say there will be a paradigm shift in the way sectors operate. “Technology will play a big role in building contingency plans and providing data-driven decision making in situations like COVID-19. On the positive side, health, wellness and safety of people will gain more significance,” adds Magazine.
This means people will be more interested in investing in things that have a tangible effect on their safe-keeping, health and future. Apart from this, millennial buyers who avoided investing in their own home, will consider investing in one. “Those living in rented accommodations, have realised the safety and security of living in one’s own house. This segment is expected to make the transition from ‘fence-sitters’ to ‘actual buyers’ at the earliest,” adds Hiranandani.
Shah further adds that the real estate sector has the most optimal graph as far as secured investments are concerned. Today, we are all confined to our homes and safe, thus, realising the importance of housing and investing in the same, irrespective of whether it is a small house or a bungalow. Real estate in India will boom after COVID-19, he predicts.