Many who expect some decrease in property prices may be disappointed as property values, if anything, would likely display upward movement in the post-Coronavirus world, based on many factors.

If a slowdown in demand has kept price growth in India’s residential real estate market in check, the sudden outbreak of Coronavirus, which threatens to have a dramatic effect on global economic growth as economies enter national lockdowns to contain the spread, will wipe out any chances of value appreciation on the property market.

img1: Real Estate Market in India

How unlikely to drop property prices in India after COVID-19?

The 2019-20 Economic Survey pointed out that by taking a haircut as a solution to reduce their inventory pressure, the builders would cause prices to fall. There are a variety of issues at stake, however, which makes it almost difficult to do so.

1) Projects delays can be expected, as the supply of building construction materials that India imports from China, will be hampered in the wake of the pandemic.

2) The Centre’s “Make in India” program may get a boost from this difficult in the medium to long term.

3) The government may launch measures to make it more lucrative for buyers to invest in real estate.

4) The RBI is likely to reduce the repo rate to support the economy, making borrowing cheaper for home buyers.

Developers are under massive pressure from the industry:

The developers are currently sitting on an unsold stock worth Rs 6.1 lakh crore in the top nine residential markets. With investors being fence-sitters, putting almost entirely out of doubt any chances of making a profit for a significant number of builders, sources of liquidity are also rapidly drying up with the current crisis of non-bank finance companies (NBFCs).

As it is, banks have dragged many major developers in the country to the insolvency court over failure to pay major-scale dues. If the question of demand slowdown continues for a longer duration, more builders would face the same fate – a highly probable scenario in the contagion’s context.

Although the government has already agreed to set up a Rs 25,000 crore stress fund to help constructors complete their pending projects, an overall economic downturn will restrict their ability to concentrate on real estate and provide significant assistance. Earning by way of home sales remains the only choice for a builder in a complex scenario like this. This makes cutting costs almost impossible.

While the number of project launches will drop significantly due to numerous obvious factors.

The cost of shipping products to increase:

Project delays are on cards as supply of building materials that are disrupted in the wake of the pandemic by India exports from China. The effect of the situation will be more prominent on premium-luxury housing projects that rely heavily on China’s suppliers of fixtures and furnishings, the country to which the contagion source has been traced. The time lag would not only postpone construction developments but potentially will increase the total cost of building developments because contractors would have to rely on additional sources to fulfill their building needs.

The center’s ‘ Make in India ‘ program could get a medium to long-term boost from this difficult situation, but short-term pains are unavoidable for developers. In a situation like this, falling prices is hardly a solution. The government might also introduce steps that could make investing in property more profitable for buyers. Help for real estate, the country’s second-largest source of jobs, is also anticipated by waiving off tax on unsold inventory.

img2:  price growth in India’s residential real estate market

Interest rates decline, a home purchase is affordable:

The RBI is projected to reduce the repo rate, thereby making it cheaper for homebuyers to borrow. Interest rates for home loans are as small as 8 percent now. When clarification on the effect of COVID-19 on the job market is achieved, the further reduction will serve as a catalyst for consumers to invest in real estate at a cost advantage.

Although the government has already extended the benefits provided under Section 80EEA until March 2021, it might also consider extending it to give first-time homebuyers a boost. Experts agree that concern about the imminent job loss among customers will likely continue long after the worst is over and returns to normalcy. The government would have to continue expanding the assistance until that time.

FAQs

Question: Would the property prices fall because of the effects of Coronavirus?

Answer: Although any sharp rise is unlikely, due to a downturn in demand, property prices may still retain the same level.

Question: What effect does Covid-19 have on the housing market?

Answer: Because of the outbreak, housing demand is likely to get hit in the short term.

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