The COVID-19 outbreak has adversely impacted several key sector industries, and, the land business has not been spared. In a crisis, resources and revenues drain faster than expenses. As a result, developers are taking a defensive stance in launching new housing projects.
[authorimages] Resources and income fall faster than expenditures in a crisis. As a result, developers have taken a defensive approach towards the implementation of new housing projects. The slow-balisation of economies under the context of COVID-19 has immobilised citizens, frozen funds and arrested industry growth. It has adversely affected credit distribution and asset prices, thereby depressing capital flow across sectors. The resilience of the real estate sector is put through a litmus test in times when even banks and financial institutions are under a twin-pressure recovery with regards to offering credit relaxations.
The Indian real estate sector has a cause to rejoice as the Ministry Of Finance, recently, declared the first tranche of the economic package. This relief bundle, which is approximately ten percent of India’s Gross Domestic Product (GDP), also includes the previous Rs 1.7 Lakh Crore announced in March 2020. The same complements the measures taken by the Reserve Bank of India (RBI) to infuse liquidity in the economy by reducing the policy repo rate. The decision by the same to reduce the reverse repo rate by 25 basis points and infuse additional liquidity into the National Housing Bank (NHB) would also speed up and promote bank loan flows to the beleaguered sector.
These initiatives are a significant step that will reduce the stress of developers as construction activities around the country had been halted for more than a month. Homebuyers may have to face delays in gaining possession of their purchased homes, but this was inevitable.
Further, the Ministry of Housing and Urban Affairs (MoHUA) taking cognisance of the financial situation, advised all states to extend the timetable for project completion and validity duration of project registration by six months, thereby offering much-needed relief to real estate developers.
Foreign investors have been leaving the Indian markets in recent months due to uncertainty in the global economy. As a result, the prices of assets have been deprived. Amid the dark clouds, developers were eagerly awaiting the launch of Real Estate Investment Trusts (REIT), which were scheduled for listing at some point this year. However, the listing is likely to be delayed again, looking at the current circumstances, and may exacerbate the liquidity woes of the same.
Eventually, the real estate sector has to embrace new technologies and reduce their construction costs which will help the same to generate more demand and sell inventory at a lower price. It also gives elbow room, as the industry slowly restarts its operations as more relaxations are given with successive lockdowns. Nevertheless, more concrete announcements are awaited, which could resolve demand challenges. The Central Government should also provide additional some tax benefits on home loans which would support the demand for housing and also could help the same in achieving its goal of ‘Housing for All’. To boost liquidity, the RBI needs to lower the policy repo rate further and mandate banks to pass on these benefits to consumers rapidly.
The National Real Estate Development Council (NAREDCO) should propose to the Central Government to invest in NBFCs and to instruct the same to borrow foreign funds which will help in reducing interest rates. However, the latter may be a challenge in light of India’s protectionist attitude towards policies on Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI).
The effect of the COVID-19 flare-up depends on the cataclysm’s gravity, degree, and distribution, which is still unknown even today. The moratorium and corresponding relaxations must be made viable, and developers will be challenged to lift their balance sheets without falling into an abyss of liquidation, bankruptcy, and vicious litigation.
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