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Below is the View on COVID-19 to have long-drawn impact on Indian real estate by Motilal Oswal Securities Ltd
We spoke to the Founder and Managing Director of Liases Foras, Mr. Pankaj Kapoor on impact of the Coronavirus (COVID-19) on the Indian real estate sector.
On overall industry: Most segments in the real estate sector – residential, office and retail – are likely to see a long drawn impact of COVID-19. There could be a possible contraction in value and we expect the NBFCs and banks to see an impact. The real estate market is currently valued at INR12.6t (6.1% of GDP); of this, the Developer market is at INR5.2t, Self-construction is at INR6.7t and Commercial (on capitalized cost basis) is at INR0.5t. We expect the real estate sector to come to a halt for probably another six months.
We expect a reduction in residential real estate demand in “expensive” cities.
* Many launches, which were expected in 4QFY20 (due to the auspicious occasion of Gudi Padwa) might have taken a hit. 4QFY20 might see a demand slowdown of 25- 30% while 1QFY21 might see demand contraction as high as 50%.
* Segments – Luxury and affordable housing (AFH) might see deeper cuts.
* Regional – The Mumbai Metropolitan Area (MMR)/ National Capital Region (NCR) are both high value markets (and dependent on the BFSI industry); these might see a bigger impact.
* MMR market – With annual sales of 71,000 units, it currently has supply of four years’ worth of sales. It has witnessed QoQ growth. However, we expect 50-55% decline in MMR region sales in 1QFY21. We believe that ~90% of home buyers in this region are employed in the private sector.
* NCR market – Gurgaon was contributing growth; however, we expect a decline in NCR too (similar to MMR). In this region, ~80% of home buyers are employed in the private sector.
Commercial (Office space):
* IT/ITES and BFSI would be the hard-hit sectors. MMR/NCR/Bangalore should see the commercial office market getting impacted.
* The commercial office space might also witness long-drawn impact of COVID-19 by way of:
Behavioural – Work-from-home culture is being seriously adopted by IT/ITES and the BFSI space, which might put pressure on commercial demand.
Increased vacancies – If the downturn persists longer and the economic impact starts hurting the job market then the reduced work force will impact the commercial leasing space.
Dispersion: Instead of concentrating on office space in Tier-I cities, corporates will look forward to tapping Tier-II/Tier-III cities, which will optimize their operational costs.
* Co-working space – This trend has picked up fast in India and the space has seen 30-35% of incremental commercial absorption taking place in last couple of years. Due to the business viability of many start-ups, which are major occupants in the co-working space, it might see a hit.
Commercial (Retail space):
* The retail segment is largely driven by rising consumerism and increased organized penetration. This segment might see a short-term impact. However, on a longer-term basis, India’s Tier-II/Tier-III cities, where organized retail has just started gaining traction, might not see a significant impact.
* On the rental side: Mall developers might see pressure on their rentals due to the slowdown in the economy.
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