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Real estate industry 2021: What can the sector look forward to? Is the worst behind us?

How the budget pans out for the real estate sector, only time will tell, but one thing is for sure, strong fundamentals are vital for the revival of housing demand

Real estate industry 2021: What can the sector look forward to? Is the worst behind us?

The pace of revival can quicken, provided the government extends a helping hand and injects enough stimulus to boost the sector and the overall economy

The year 2020 was meant to be a year of recovery for the Indian real estate sector, especially the housing segment. After three years of business disruptions caused by demonetisation, implementation of GST and the realty law RERA, and the NBFC crisis, the market had started stabilising.

But all hopes were thwarted as the COVID-19 global pandemic hit India, forcing the government to impose a national lockdown from March 25 for over two months to curb the spread of the deadly disease.

Instead of recovery and growth, 2020 brought more pain and distress in the realty sector, shaving off 40-50% of business in the residential segment from an already low base.

Also Read: 2021 outlook: Is it wise to invest in Indian real estate market in 2021?

Impact of COVID-19 and lockdown

The business ran as usual for the first two months of the year, but all real estate activities came to a sudden halt in late March with the lockdown. Although the economy started to unlock from June onwards, the situation remained grim through September as construction activities were stalled because of labour paucity, while sales were down on account of concerns over economic growth. The threat of job losses loomed large, which had a major dampening effect on consumer sentiment.

With no site visits possible during the lockdown, real estate developers and property brokers swiftly adopted digital technologies to launch new projects and market their properties, with a fair amount of success. As a positive, the pandemic accelerated the pace of digital adoption in real estate, which will go a long way in transforming how properties are sold in the country going forward.

Festival brings cheer

Housing sales began to improve from October onwards due to pent up demand and festival euphoria.

The softening of interest rates on home loans to around 7% and rock bottom housing prices coupled with attractive special offers from cash-starved developers were positive factors that paved buyers' return to the market, albeit at a slower pace.

Reduction in stamp duty on registration of properties in Maharashtra was a definite game-changer. It was a significant catalyst for higher sales in two key markets -- Mumbai Metropolitan Region (MMR) and Pune during the last three to four months of the year. This trend is likely to continue as the stamp duty cut is applicable until March 2021.

In an age of shared economy of Uber and WeWork, the pandemic has brought the importance of homeownership to the forefront of buyers' minds. The need for larger homes drove sales as we witnessed several buyers deciding to upgrade their homes solely based on size. The market feared huge cancellations of apartments booked before COVID-19 hit home, but thankfully the situation remained in control as there were only a handful of such requests. The demand from NRI customers was also encouraging during this period.

Also Read: Good Time to Buy Real Estate

Government support

In its bid to help the real estate sector survive this unprecedented health crisis, the Centre did announce various measures. These included invoking the 'Force Majeure' clause under the RERA to extend project completion deadlines by 6-9 months, the extension of interest subsidy for the middle-income group, and relaxing tax rules to allow sales of homes valued up to Rs 2 crore at a 20% discount to circle rate.

Industry players welcomed these steps, but the sector needed many more interventions on the demand side for meaningful growth. However, the government had a limited budget to address various economic sectors devastated during the April-June quarter as the country's Gross Domestic Product (GDP) contracted by 23.9%.

The initiatives taken by the government and the Reserve Bank of India (RBI) to halt the slowdown have started yielding results, with the contraction narrowing to 7.5% in the second quarter, i.e., July-September 2020. The comforting news at the moment is that economic growth, according to some experts, including the Delhi-based economic think tank National Council for Applied Economic Research (NCAER), is likely to turn positive in the next two quarters. The NCAER expects growth to be 0.1% in the October-December quarter and 2% in the January-March quarter.

The prospects of positive economic growth in Q3 and Q4 of this fiscal year augurs well for the real estate sector, but it will need the government's support in the upcoming budget to regain its lost glory. At the macro level, the grounds for a likely surge in demand for residential housing and commercial space in the months to come are not hard to foresee as they are linked to a possible upsurge in economic growth.

Also Read: Retail sentiment in real estate improves in Q3, but not robust yet

Industry wishlist

As the real estate sector supports around 250 other ancillary industries, the government should consider increasing tax sops on the purchase of residential units that would help create a ripple effect on the overall economy. Following the Maharashtra model, other states should cut stamp duty to create a win-win situation for all stakeholders. Maharashtra has demonstrated that the move benefited buyers as well as developers. And interestingly, the revenue of the state exchequer swelled as well.

With NBFCs still facing a liquidity crunch, the government can look at the possibility of creating more schemes like the Rs 25,000-crore Special Window for Affordable and Mid-Income Housing (SWAMIH) to ensure expeditious completion of all stalled and stressed projects. Such schemes would help unlock funds for banks and lending institutions and ensure that homebuyers get possession of their dream homes.

The government should also consider extending the Credit Linked Subsidy Scheme (CLSS) for middle-income group (MIG), under which an upfront interest subsidy of up to Rs. 2.7 lakh is provided to first-time homebuyers beyond March 31, 2021.

Also Read: How COVID-19 pandemic is an opportunity in disguise for India's realty sector

Way ahead

How the budget pans out for the real estate sector, only time will tell, but one thing is for sure, strong fundamentals are vital for the revival of housing demand. The pace of revival can quicken, provided the government extends a helping hand and injects enough stimulus to boost the sector and the overall economy. However, one needs to be cautiously optimistic with the pandemic still a cause for concern.

(The author is Group CEO, Housing.com, Makaan.com & PropTiger.com)

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