In the last few months, COVID-19 pandemic has changed the way we live, work and socialize. The long-term effects of this pandemic are expected to bring in lasting changes in our built-environment, transforming the real estate landscape around the world. Real estate sector in India is coming to terms with this reality and companies are working towards adapting to the new normal.
IIMB’s Real Estate Research Initiative (RERI) has commenced a project to understand the impact of COVID-19 on the Indian Real Estate sector. As a first step, RERI in association with the Confederation of Real Estate Developer’s Association of India (CREDAI), conducted an extensive survey of real estate developers across India in the week beginning 25th April 2020 and received 294 responses.
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Key findings from this survey are as follows:
The lock-down impacted both residential and commercial sectors – while 73% of the residential developers witnessed a complete standstill in sales, more than 90% of the commercial developers witnessed delay in (either whole or part of) their rental receipts, reduced footfalls in retail malls and less than 5% occupancy in hotel properties. With cashflows impacted, companies had enough liquidity to address fixed costs and debt servicing for less than 3 months.
In response to the current situation, several developers have adopted strategies such as price discounts, incentives, virtual tours and contactless online booking to improve sales in the residential segment. To ensure profitability, most developers are focusing on reducing fixed costs (36%) and pay cuts (41%). Close to 20% of them are also considering workforce reduction. While pay cuts may be in the range of 10%-25%, workforce reduction may be in the range of 10%-30%. 56% of the respondents chose to retain migrant labourers on site during the lockdown.
Industrial and warehousing segment is expected to lead the recovery process in less than 6 months, followed by residential segment (6-12 months). Office, retail and hospitality segments are expected to take longer than 12 months to recover.
The top three expectations of the developers from the government were:
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Reduction in interest rates to increase liquidity,
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Relaxation in project delays for RERA compliance
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Tax breaks for developers including input tax credit on GST.
Some of the above steps have been taken by the government post this survey.
While most developers identified cash crunch, debt, marketing and sales as well as labour shortage as key areas of weakness during this phase, they have identified digital/online marketing, better processes, branding and timely delivery as the key focus areas in the coming months to ease the impact of this pandemic.
RERI plans to take up more such surveys in the due course to chronicle the long-term impact of this crisis on businesses.
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