Covid-19 poses significant challenges to the overall economy and the real estate sector will be among those sectors that see high impact, according to ICRA.

However, there would be variations across residential, retail and office space in terms of the time frame over which these risk factors play out and the extent of cash flow disruption.

For residential real estate, which has already been under stress for a prolonged period, the coronavirus outbreak is a double whammy.

Demand risks are likely to increase, resulting in a substantial decline in new sales. Committed collections receivable from already booked sales are also likely to get impacted. Less disruption would be expected in the home loan-funded segment, although in some cases pay cuts may lead to re-evaluation of buyer credit profile by housing finance companies, thus impacting incremental disbursements. New launches are likely to get deferred.

Retail real estate is directly impacted by the ongoing nationwide lockdown and resultant closure of malls. Even after resumption of operations, the footfalls are expected to be muted, therefore, the financial position of the tenants will continue to be stressed.

As per ICRA analysis, impact on revenue, profitability, liquidity and coverage indicators will be high to severe, in case the lockdown is extended beyond May.

Office leasing segment

The office leasing segment will be relatively less impacted in the near term by Covid-19 related business disruptions as compared to other segments. Rental inflows from the larger anchor tenants are expected to be less prone to delays and, as per feedback from the landlords, many of the larger tenants have already paid the rent for April.

These risks will be partly offset by the competitive advantages enjoyed by India as a hub for business process and IT support service segment, which may continue to support the incremental demand for office space, going forward.

Overall, the three-month moratorium provided by the RBI on debt obligations is, however, expected to provide some relief for all segments.

Going forward, clarity on settlement of interest accrued during the moratorium period will be critical. Repayment requirement of the accrued interest may put acute pressure on cash flows of the entities.

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