Home News COVID-19 led disruption may lead to sizeable residential price correction

COVID-19 led disruption may lead to sizeable residential price correction

According to some real estate analysts with leading broking houses, COVID-19 disruption is likely to set the stage for meaningful residential price correction. Further, markets which are more investor driven may witness higher volatility and therefore regions like Mumbai and NCR may see more acute price corrections.

Residential real estate prices have remained largely flat for the last five years in major metros despite sluggish demand, and large inventory overhang. Real estate asset prices globally tend to correct when lenders force asset sales, and/or distress from a personal liability as seen in times of recession, etc. The COVID-19 disruption has driven liabilities higher while cash flows (sales) have further eroded. Restructuring exercises (if any) will continue to put the onus on developers to accelerate sales. “Almost all variables currently suggest that meaningful price cuts appear the most likely scenario out of the current logjam,” an analyst said.

It may be recalled here that Mr Piyush Goyal, Union Commerce Minister, in a webinar arranged by NAREDCO a few weeks back had said “We will try to provide some concession on ready reckoner rates. Even if we (the government) are not doing anything, you have to sell (the unsold inventory of housing stocks at reduced prices).” He firmly believed that the realtors had no option but to reduce the prices. A similar view was expressed by the minister of Road Transport and Highways, Mr Nitin Gadkari earlier. Mr Goyal said in the webinar that just because the realtors had bought land at higher prices, the government cannot help them to hold on to their inventory till the market improves. “Market is not improving in a hurry,” the Commerce Minister said in the webinar.

According to analysts, much like 2008-09, meaningful price cuts in the market tend to drive demand higher, and sets the stage for a cyclical market recovery as developers’ cash flows improve. A reluctance to offload inventory is only likely to further aggravate the problem, especially with balance sheets impacted by COVID-19 disruption. While cost curves have remained flat, a price cut implies lower profitability, however, by holding on, developers are only furthering increasing the holding cost.

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