The mammoth second Covid wave struck India at a juncture when it was almost sanguine that the virus contagion has left its shores. The speed and ferocity at which the invisible specter caught the country is its grips had left the country with its overstretched health infrastructure, gasping for oxygen and beds.
While localized lockdowns across the country became a necessity to stop the spread of the virus, state governments allowed important economic activity such as real estate construction. This was significantly a noble decision since the real estate sector is the second largest employer in India and thousands of migrants and daily wage earners depend upon the sector for their living.
The property industry also contributes 6-7% to India’s GDP and is linked to many critical industries such as cement, steel, paint, bricks, building materials, consumer durables and so on, creating a multiplier effect on the economy.
On the other hand, the demand for housing has been at its peak post-pandemic. Homebuyers sitting on the fence have entered the property market with renewed confidence to salvage their dream home at a time when it’s the most affordable. Stamp duty cuts, low-interest rates, stable property prices and attractive housing offers have created a favorable ground for real estate sales. Property developers haven’t let their guard down and are trying their best to attract homebuyers and clear off inventory.
The real estate sector cannot afford another lockdown and the government too cannot let slip the opportunity of a huge revenue generated from property registrations. Though sales have slipped in Q2, the desire of homebuyers to buy a home hasn’t waned. And the real estate sector is hopeful of a quick recovery.
Housing Demand still stable
The residential real estate segment did perform beyond expectations in the last two quarters. Property sales zoomed up on the backdrop of government incentives and the necessity to buy a home. First-time and existing homebuyers contributed a lion’s share to the real estate sales. Between July 2020 and March 2021, 85% of buyers in NCR bought their first homes while in MMR, 65% of buyers upgraded to bigger homes, driven by the new normal imperatives of WFH and social distancing. Growing preference to move to the peripheries and up-gradation to homes with snazzy touchless home tech are also reasons behind this surge. Housing sales which have slowed down in Q2 2021 will pick up in Q3, with the demand for homes still holding good promise in the coming quarters.
Property prices sound, but correction looms
The current blip in the housing sales has worried real estate developers a bit. With the virus still baying for the blood of Indians and a pall of gloom having set across the country due to this crisis, many homebuyers have shelved home shopping at present till this grave situation withers off. This has triggered the expectations of a price correction in the property market. Prices of cement, steel and other construction raw materials have gone up tremendously and developers are creaking at their seams at present due to a tight liquidity situation, caused by a drop in sales. This will ultimately cause developers to pass on the extra cost to homebuyers.
Mid and luxury housing segment to see faster recovery
The luxury real estate market had a ball in the previous two quarters since the pandemic didn’t have any major impact on this segment. Stamp duty cuts, attractive discounts gave luxe homebuyers a golden opportunity to cash in on this rare situation. MMR saw the biggest surge in luxury and ultra-luxury home sales followed by Delhi NCR and other tier 1 cities, with celebrities, HNIs and corporate honchos making full use of the stamp duty cuts. This segment will continue to see good demand in the coming quarters and will see good growth since the category of buyers aren’t affected much by the market forces.
Though the second wave has stalled homebuying for mid-income consumers, this segment will recover faster once the Covid curve is flattened since homebuyers will be gung-ho about value-buying. On the other hand, affordable housing segment will take time to recover since there is a lack of confidence in budget homebuyers and priorities now are focused solely on preserving cash to meet medical emergencies. Also, the MSME sector has been affected by the second wave due to lockdowns. So, homebuyers in this category will wait till the looming danger of the second wave withers off.
All in all, the housing sector won’t face much of turmoil due to this ongoing fierce second wave. Covid cases are receding, and the economy has held its ground which will lead to better days soon. Real estate developers have become cautious and postponed new launches for a more opportune time but are speedily completing ongoing projects to cater to the high demand for ready homes. Green shoots will again emerge in the third quarter and the real estate sector will emerge triumphant again. Till then, let’s wait and pray that our nation recovers from this temporary apocalypse. This too shall pass!
