Real estate could see major headwinds in the short term: KPMG

V Rishi Kumar Updated on May 20, 2020

With staggered revival, while the long-term outlook for real estate sector over the coming 18-24 months may likely emerge positive, the short-term impact is likely to be a dampener for real estate sector’s recovery, forcing entities to contract operations, revisit planned developments, expansions, and investments across the real estate sector.

As the situation moves closer to normalisation with lockdown easements across India and globally in the medium term, the recovery process will see rapid traction, bringing new opportunities within specific real estate segments, according to consultancy firm KPMG in its report, COVID-19: React, adapt and recover – The new reality: A perspective on the Indian real estate sector.

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In the report, Chintan Patel, Partner and Leader, Building, Construction and Real Estate, KPMG in India, states: “With this recent pandemic outbreak, the real estate sector is likely to be handicapped in the short term, impacting over 250 related industries and economic sectors. In addition to capitalising on the intervention proposed by the government, the industry should resume operations post lockdown by leveraging technology innovations for enabling employee and consumer health safety standards and bring about design flexibility (Work from Home).”

He adds: “Ongoing financial woes as well as an unprecedented global crisis of the pandemic have unsettled the investment climate, and almost no industry is insulated from its impact.”

Decline across sectors

The residential sector could face subdued demand and liquidity pressures to continue creating slowdown in sales in the short and medium term. The credit crunch impact is likely to to create residential sales contraction, bringing down sales from four lakh units in 2019-20 to 2.8 lakh-3 lakh in 2020-21 across the top seven cities.

Despite the lockdown scenario and subsequent easing of restrictions, the IT-BPM sector is anticipated to continue driving demand for office space. On the other hand, even with the steady leasing in flexible workspaces across major Indian cities, the segment will face major headwinds over the next 9-12 months.

The warehousing market had robust absorption volumes in 2019. However, new leasing activity in 2020 is expected to witness a sharp decline compared to 2019.

The report recommends the government to support the sector to not only survive but to perform to its fullest potential. This could be by financial support in the form of providing additional funding, loosening lending norms and extending the repayment schedules. It also recommended reducing the number of and timelines for approvals, reducing fees and premiums and advocated for fiscal support in the form of tax incentives, reduction in GST rates etc.

Published on May 20, 2020
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