The country’s real estate sector, which has already been under stress for a prolonged period, has been served a double whammy on account of Covid-19 with overall demand risks for the sector increasing.

The outlook on the segment remains negative and navigating the near term challenges will be critical for long-term sustainability. This is also reflected by a decline in new sales and the associated collections in Q1FY2021, according to ICRA.

For the current year, the agency expects overall sales volume from completed and under-construction inventory to reduce by 40-60 per cent on account of Covid-19. The preference for completed inventory is expected to continue thus favouring developers having higher proportion of such projects.

Further, the steep reduction in home loan rates may aid housing demand to some extent, with home loan interest rates having dropped below 8 per cent for the first time in 15 years.

Committed receivables from already booked sales have also been impacted, given that some mile-stone based payments have been deferred due to stoppage of construction activities earlier. Projects catering to the self-funded segment have witnessed a significant disruption in collections as compared to the home loan funded segment, as banks continue to make payments to developers. Although in some cases, pay cuts/job-losses have led to re-evaluation of buyer credit profile by HFCs, thus impacting incremental disbursements. In FY2021, collections from customers to decline by around 35-40 per cent.

Project execution has also gotten hampered, with reduced labour force presence and raw material supply chain disruptions attributable to continuing localised lockdowns on non-essential services.

Spending to go slow

The spend on ongoing projects is projected to reduce by around 30 per cent in FY21 on account of the pandemic. New launches, which were already on a declining trend given the increased focus on deliveries, are likely to get further deferred.

Covid has been classified as a force-majeure event under RERA, and therefore, deemed extensions of 6-9 months on project execution timelines have been granted by many states. Overall project cash flows are expected to be impacted by slower collections leading to reduced inflows.

The office leasing segment has witnessed lower impact due to Covid-19 pandemic so far. Notwithstanding the widespread adoption of work-from-home by corporates and low proportion of employees working out of the business and IT parks, there has been no material impact on rental collections and occupancy till date.

There could be considerable reduction in the supply pipeline (earlier estimated to be around 120 million sq ft over 2020 and 2021) due to moderation in demand over the medium term and constraints on availability of financing.

Institutional investor interest in the sector continues to remain strong, as evidenced by the successful listing of the second REIT in the country in August.

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