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How Badly Did COVID-19 Affect The Real Estate Market?

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Property buyer
Property shortage exists in India regardless of the socio-economic conditions.

The Indian real estate sector contributes around 6 percent to the GDP and this figure is expected to rise to 13 percent by 2025.  The housing sector has a great future ahead as mortgage penetration is very low in India and the family size is large.

Emphasizing the significance of the housing sector and the changes it has gone through throughout the pandemic, #IMPRI Center for Habitat, Urban and Regional Studies (CHURS)IMPRI Impact and Policy Research Institute, New Delhi presented a special lecture with Prashant Thakur on The Housing Market amidst the COVID-19 Pandemic as part of the series The State of Cities – #CityConversations.

Dr. Rumi Aijaz, Senior Fellow, Observer Research Foundation (ORF), New Delhi, welcomed the speaker and discussants before delivering his enlightening comments. He said, “The housing sector does not need an introduction. Its significance is very well understood.” It is also important as it offers opportunities to various stakeholders like architects and housing has become a dire need in today’s world according to Dr. Aijaz.  

He further mentioned that there is a shortage of housing in India regardless of the socio-economic conditions despite numerous housing programs established by the Government. Also, there are unfortunate incidents in large cities where air quality is deteriorating and disruption in livelihoods is observed. He said the pandemic and its persistence is a topic of concern as it has had many adverse consequences on the housing sector.

Introduction To The Housing Sector

Prashant Thakur, Senior Director and Head of Research, ANAROCK, Mumbai, began his talk by presenting the evolution of the industry and its impact. The Indian real estate sector contributes around 6 percent to the GDP and this figure is expected to rise to 13 percent by 2025.

Speaking of various countries, he mentioned that China and Brazil are the closest comparisons concerning evolution in the housing sector. In India, the urban housing shortage is 11.2 million and homeownership as a percent of the urban population is only 32 percent.

The housing sector has a great future ahead as mortgage penetration is very low in India and the family size is larger when compared to China and Germany. At the same time, Mr. Prashant emphasized that India has a young population and that around 54 percent of the population comprises the working class.

Prashant Thakur speaker
Prashant Thakur spoke on the housing market in the pandemic.

However, the sector was in a bad light for many years, owing to several factors like high fragmentation, low entry barriers, illegal construction, and other unscrupulous activities. Moreover, the market was driven by speculators which are not optimistic for the long term.

The transformation journey of the real estate sector can be mapped into: fearless, regulated, controlled plus outlier and cautious revival according to Mr. Prashant. In 2013-2014, there was a supply of more than 10 lakh units and it was mainly driven by investors and in 2018-2020, the supply dropped to 5.6 lakh units as the sector was more regulated during this period.

The supply-absorption dynamics of pre-COVID and post-COVID show that the industry was slowing down and this slowly reversed with the advent of COVID as the process of consolidation occurred. A sharp recovery is seen and Mr. Prasant attributes this to affordability and a market-driven by end-users.

After the government announced various incentives for housing projects, the share of affordable housing as a percentage of total new launches, went up to 44 percent as of June 2019. The peripheral areas are gaining prominence after COVID, with the hybrid working models, improved connectivity, and cheaper land parcels. Sensing this trend, developers are launching many projects in the periphery.

Emerging Trends Due To COVID Outbreak

The forced lockdown has led to increasing demand for plotted developments for sustaining better social distancing standards and weekend homes along with farmhouses are also in demand according to Mr. Prashant.

The market has changed from being driven by speculators to being end-user driven and millennials, who preferred renting to buying, as evident in the average age of homebuyers which has fallen from 54 years to 29 years in the past two decades.

Real Estate Consumer Survey (H1 2021)

The findings of the Real Estate Consumer Survey state that 47 percent of property seekers are looking for nearing completion units and 71 percent of them are looking to buy for self-use. Mr. Prashant emphasized that 77 percent of them were concerned about developer credibility, 56 percent about location, 81 percent about pricing, 68 percent about design, and 55 percent about reliable post-sales services which indicate that most of them are end-users.

Digital adoption in the real estate sector was very low but the pandemic has accelerated this method. This is substantiated by the fact that 60 percent of the entire buying process is conducted online as opposed to the 39 percent in the pre-COVID era.

Dr. Rumi Aijaz mentioned that the market seems to be in a better place now due to increased demand and this appears to be a good sign for both buyers and sellers. He agreed that peri-urban areas are growth centers where many upcoming construction projects are coming up.

Pavan Dixit, Co-founder, property360degree, Hubli, Karnataka, commented that prices were mostly remaining at the same level except for minor drops. “As part of the rental market, the sizes of the properties are increasing,” said Mr. Pavan, agreeing with Mr. Prashant. Mr. Pavan posed a question concerning increasing rental yield.

Dr. Akshaya K. Sen, Joint General Manager (Economics) & Fellow, Human Settlement Management Institute (HSMI), Housing & Urban Development Corporation Ltd (HUDCO), New Delhi, acknowledged that the housing sector has strong multiplier effects – an investment of 1 lakh rupees will create four jobs. NCAR study further mentions that this sector has an output multiplier of 5 – one unit of investments will give an output of 5 units. Thus, it is crucial to accelerate investment in the housing sector. Dr. Akshaya spoke about governance-related issues such as many approvals being required, and delays and corruption being rampant.

He continued to speak about access to affordable housing finance – the funds available to economically backward groups are less than 4 percent. The other 96 percent of the funds are available to those sections where the housing shortage is less.

Mr. Prashant said that the housing sector has oversold properties as an investment while the demographic profile indicates that the housing rental would remain in check due to rising supply. Dr. Arjun Kumar posed a question on the way forward of the sector. Mr. Prashant responded by saying that the construction sector is a very important one and the current investments in the real estate sector would contribute around 13 to 15 percent in the next 5 years. The session was concluded by Dr. Arjun Kumar, Director at IMPRI after he delivered the vote of thanks.

Acknowledgment: Ritheka Sundar is a Research Intern at IMPRI.

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