The outbreak of COVID-19 has created a global health crisis, and its economic impact is also bigger. The abrupt halt of urban activities has led to a demand, supply and market shock. Reports suggest that the Indian GDP took an immense hit as its three major contributors – private consumption, investments, and external trade — were affected. These effects have percolated to all sectors, and real estate is no exception – constructions were stopped for a month at the project sites and so were the sales.
Speculations suggest a rise in the number of fence-sitters and delay in decisions on large investments like real estate, which may further escalate the agony. While retail and offices might take a little more time to be ‘Business as usual’, realtors are gearing up for the ‘new normal’ once the lockdown is over. According to a Savills report, the post-COVID-19 scenario will give a fresh start to the realty sector with a renewed vigour. The commercial realty is expected to bounce back once the lockdown is lifted.
Over the past few years, the commercial real estate sector has been, by and large, resilient to slowdown. It has also been the preferred investment choice as it is insulated from market volatility in the long run. A commercial property gives the average rental yield of 6%-10%, as opposed to the rental yield of 1.5% – 3.5% from a residential property. The same holds for capital appreciation in the current market scenario. Moreover, in the year 2019, the Indian retail witnessed a total PE inflow of $970 million with the commercial real estate attracting the maximum private equity investments to the tune of $3 billion in the first three quarters alone. A Colliers International report foresees continuity in private equity investment in Indian real estate over the long term, with a robust growth as compared to other major economies despite the COVID-19 outbreak. These statistics indicate the immense potential of commercial realty. Moreover, it is to be noted that the COVID-19 pandemic is only a temporary phase. Hence, it is likely that once the situation returns to normalcy, the prices will move towards an upward trajectory owing to a huge pent-up demand in the sector.
Fortunately, the government has announced a series of initiatives to propel the Indian economy. Additionally, the extension of deadline for completion of real estate projects and the Reserve Bank of India’s decision to allow a moratorium on all loans and deferment in interest payment on these loans for three months will be a huge breather for the real estate sector. Moreover, another cut in the reverse repo rate by 40 bps from 3.75 per cent to 3.35 per cent will further inject liquidity into the economy.
Nevertheless, the COVID-19 pandemic will also redefine certain trends in the realty sector. Going forward, we expect that hygiene and wellness will be a key factor in assessing properties in both commercial and residential segments. In the commercial sector, it will compel developers to revisit their operational activities and services and carry out a comprehensive assessment of their hygiene and wellness measures. Also, the role of emerging technologies such as Virtual Reality, Artificial Intelligence, and 3D walkthroughs will become increasingly dominant and will continue to disrupt the real estate segment.
Bolstered by enabling policy reforms and demand pick-up, once the situation returns to normalcy, it will ensure that the commercial realty remains buoyant and continues to attract private equity investments.