Impact of Covid-19 2nd wave on Real Estate : Will the Prices decline?
The Real Estate Sector of India had shown considerable strength despite the pull-backs from the Covid-19 pandemic last year. The late 2020 and first quarter of 2021 showed a bounce-back in the number of sales in major cities and the condition of real estate was swiftly climbing to the pre-covid levels. The onset of the second wave of Covid-19 in April 2021 have somewhat slowed this recovery in real estate as the health of the people remains the topmost motive for the country right now. Thus, the newly imposed lockdowns in the majority of the states have halted the operations of many real estate projects. Along with that, the economic changes have led to rising in the prices of raw materials required for construction. The Real Estate Developers are faced with similar challenges like last year in the second wave of Covid. However, the real estate sector looks to be well prepared this time in their fight against Covid-19 and the uncertainty is less due to the faster recovery witnessed after the first wave. The real estate sector seems to be putting more effort into accepting the situation and preparing better despite the hurdles posed by the Covid-19 situation.
Factors affecting Real Estate Sector in 2nd Covid-19 wave
The lockdowns imposed under the Covid-19 second wave caused a similar situation of panic and fear like the first wave, in the minds of contract labourers who migrate from their hometowns in search of work. Thus, most of the migrant workers returned to their hometowns due to the uncertainty of work on construction sites. This has forced many real estate projects to halt their operations and block the working capital flow for real estate developers.
Rising prices of Cement and Steel
The prices of the major raw materials required for real estate constructions like cement and steel have seen a considerable rise due to shortage on a global level. With rising input costs for such raw material and increased demand from countries like China, the US, and India, the real estate construction industry is bearing the brunt of the same.
The increase in the material cost may project a slight increase in real estate prices in the coming year.
Lockdowns restraining buyers to explore real estate
The lockdowns in the majority of states have confined prospective homebuyers in their houses and restrained real estate property exploration. Thus, the sales number has decreased dramatically in April with an almost 50% decline in sales of the top 7 Indian cities as compared to the first quarter of 2021. This decreasing demand due to lockdown constraints as well as uncertain employment scenarios for Indians may induce a short-term slump in the Real estate sector.
Owing to the above factors, the real estate sector is facing an extreme liquidity crunch and thus impacting builders from giving more discounts. This scenario may be subject to change if the vaccination picks up at a faster pace and the daily case counts reduce. However, the main concern for prospective buyers is whether the prices will see more correction in the coming weeks.
Will the Real Estate Sector see more decline in prices in 2021?
According to the experts in the real estate sector, the future months may witness a demand lull which will only make the builders decline the prices by smaller margins. The sector has already fulfilled the demands of prospective buyers in the late 2020 and early 2021 periods. Therefore, current demand may be relatively lower and can be postponed till the fourth quarter of 2021 if the expected 3rd wave sees the light of the day.
The impact of the liquidity crunch and job uncertainty will be much higher for lower and medium-income segments. Hence, the demand for affordable housing might see a slight decline. But for luxury home buyers, the situation may not be that taxing and prospective buyers in this segment may capitalize on the discounted prices due to lower demands.
Moreover, the builders were gearing up for new launches in the first quarter of 2021. The new launches can be expected to come out only if the 2nd wave of Covid-19 takes a back seat and vaccination speed up. Currently, the existing demand in the top cities will be filled up using the unsold inventory of almost 9.5 Lakh units combined.
If the Covid-19 situation improves in the second half then the prices can rise in the range of 10 to 15 percent due to an increase in the profit margins from builders to compensate for the discounts given in 2020 and the first half of 2021. Thus, the current period could be the best for those buyers having income security and holding the capacity to invest in properties.
To put it in short, the real estate sector of India is going through a short-term lull in the 2nd wave. However, the preparedness of the sector is a lot better than the 1st wave and thus, only small price corrections can be witnessed. The increased vaccination drive is a positive influence in the second wave. Along with that, the real estate sector has very well adapted to virtual life by making virtual home tours available for prospective buyers in lockdowns and inducing the desire to buy their dream homes. The focus of real estate developers would be more on completing their process with available labour and constructive steps are taken from developers’ associations to arrange private buses and bring back the workers to construction sites. In addition, vaccination of migrant workers will be on the radar to ramp up the pace of slowed or halted construction operations.
In the long term view, the prices are going to rise and revival is expected as the situation of Covid-19 improves. For the second quarter and possibly even the first half of the third quarter, real estate will pan out to be in a price consolidation phase along with lower demands. Even in such a scenario the spirit and energy of the sector will be mostly on creating high-quality inventories to capitalize on the demand in the long term. Investors need to take advantage and react positively in light of conducive support from Banks and the Government regarding the lowest interest rates and stamp duty cuts.
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Impact of Covid-19 2nd wave on Real Estate Prices FAQ's:
The 2nd wave of Covid-19 may lead to a slight fall in the property prices due to future uncertainty of jobs and income sources which is impacting the demand in the short run.
The real estate sector might be impacted in the 2nd and 3rd quarters of 2021 due to the unfavourable conditions caused due to labour shortage, halted operations, rising prices of raw materials, and working capital blockage.
The Covid-19 2nd wave may impact property investment goals of low and medium-income groups due to job uncertainty and financial constraints caused due to lockdowns. However, the luxury category home buyers will be less impacted in comparison.