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Just as the Coronavirus has disrupted ‘normal’ life for people across the globe, so too has it completely annihilated the ‘normal’ way of doing business. Business power lunches, client meet and greet, office brainstorming, conferences and even the casual banter near the water-cooler, are now no more. There is looming uncertainty about what the final outcome of the pandemic will be and what will then be the ‘new normal’.
Impact of the lockdown on the economy and real estate
The economy has taken a major hit and the repercussions of the lockdown are already being felt by almost all sectors. It is highly unlikely that most businesses will venture beyond what they have in hand, unless there is a global and domestic off-take and governments across the world start driving growth. Real estate, which is the second-largest employer in the country, has suffered greatly in the immediate short-term. Both, rentals of commercial property and sales of residential inventory , have taken a hit. The only route to recovery that seems feasible, is if the government steps in and takes adequate steps to infuse a new life into the sector. Indeed this holds true for most industries in the country.
When it comes to sales, real estate also has to face the misconception in the minds of most prospective buyers that there could be price reductions. In the past few years, the realty sector has seen a number of radical policy changes, which have consolidated the sector but also led to decreased margins for developers. The situation that developers are facing is that while real estate prices are the same, the costs have gone up significantly. Cost of land, labour, raw materials and even government approvals, are significantly high. Prospective buyers should not hold on to the fallacy that real estate prices will fall drastically, as a result of the lockdown.
The future of real estate after COVID-19
The survival of the real estate sector will depend on the ability of the developers to generate cash flows. This is the only way to overcome the challenges that will emerge as a result of the lockdown phase of this pandemic. Moreover, all companies, not just real estate, will need to focus on cost optimisation, which can be achieved by investing in automation and digitisation. Businesses in a post-COVID-19 world will adopt the mantras of process simplification, better resource usage and digitisation.
There is a silver lining, as business gurus predict that India is best poised to become a manufacturing hub after the global pandemic. This could bring back interest in commercial and retail asset classes, as well.
(The writer is head – fundraising, Rustomjee Group)