Real Estate

Residential housing segment to see muted demand in 2020: CARE Ratings

Our Bureau Mumbai | Updated on April 14, 2020 Published on April 14, 2020

Post the lockdown, the residential housing segment is expected to see muted demand in 2020 as buyers may choose to postpone their purchases as they become more risk-averse, according to a report by CARE Ratings.

As a result, sales and collection are expected to get impacted adversely. After the lockdown, developers may choose to reschedule their new launches and wait for the sentiments to improve. Thus, going forward with lower collections anticipated, especially in the first quarter of the financial year 2021, the construction progress for projects with high dependence on customer advances may get hampered in the short to medium term, it said.

In the wake of Covid-19 situation, price points are expected to soften for developers ‘desperate to sell’. However, this would again depend upon location and type of individual projects and the builder’s financial flexibility which will be demonstrated in its ability to hold on to the inventory in such times.

Luxury projects, which have shown lower sales growth, are likely to be impacted more, it said.

The slowdown in the construction activity may result in weakened cash-flows for the companies in the short term. Consequently, companies with higher financial flexibility, stronger liquidity or having projects nearing completion or having more extended moratorium period or having cash strap mechanism, i.e. repayments linked to sales are better placed to tide over the uncertain market environment. However, in the long term, it would depend upon the developer’s ability to improve collections, it added.

Slowdown in commercial real estate

The commercial real estate comprising office space leasing, which was one of the booming sectors and has attracted a majority of funds from the private equity players in the past, is now expected to experience slowdown largely in the co-working space. This is due to the surge in Work From Home option by various industry players as they would look to optimise their cost and potential change in user habits as majority of demand is driven by the IT/ITES industry.

As a result, rentals are expected to soften and stabilise in the co-working space owing to lower demand. Further, a surge in office rentals exhibited in the past is expected to taper down and remain steady because MNCs begin to appreciate the benefits of work from home.

FDI within the commercial real estate segment is expected to be on hold owing to limited new leasing activity and the majority of investments coming from countries such as the USA, Singapore, Hong Kong and China where the economic activities are at a standstill as they are still confronting with the turbulence brought in by the presence of the pandemic.

Published on April 14, 2020

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