Home Spotlight Despite Q1 dip, realtors are hopeful of speedy recovery

Despite Q1 dip, realtors are hopeful of speedy recovery

Year 2019 was a difficult year with low economic growth and palpable slowdown in business activity over multiple years resulting in 11-year low GDP growth of 4.2%. Rubbing salt to the injury was COVID-19 breakout which erupted when the economic condition was the most fragile. Subsequent lockdown brought the economic activities to a standstill with real estate becoming one of the worst sufferers. Job losses and threat of job losses and pay cuts – all had their ultimate impact on the residential real estate demand. Even the commercial realty too entered the phase of uncertainty due to closure of offices and malls and also emergence of the concept of work from home.  Reflecting the market condition, realty companies recorded poor sales during the first quarter. Oberoi reported a 94% decline in sales while Sunteck reported a 46% decline. Other developers too were not better off and suffered losses in revenue due to lockdown.

Worldwide phenomenon

Recent standstill in real estate sector is not restricted just to India alone but is world-wide phenomenon. Global real estate investment activity fell sharply in the first half of the year as COVID-19 created both uncertainty over real estate pricing and hindered the physical part of the transaction process as lockdowns and travel restrictions prohibited property inspections. After adjusting for seasonal effects, global investment volumes fell 10% in first quarter of the current calendar year in USD terms and a further 47% in second quarter. This left them down 52% in total in the first half of the year. However, the size of decline has been less than that during the Global Financial Crisis, when volumes showed a peak to trough drop of 84%.

Where we are headed?

Now the biggest question in everyone’s mind is when will the industry move on to the growth track? Are there any signs of growth coming back to the industry? Whether the industry has touched its nadir or the journey is still on? Though the clear-cut answer is difficult to give one can build upon the signals available. Sawdust gathered the views of some of leading people in the industry just to ascertain the ground realities.

Variety of schemes to lure the customers

Meanwhile adversity has brought out best in our real estate companies who have come up with a variety of schemes using the digital route since the beginning of April 2020 to generate sales in ongoing projects. During the lockdown developers were using their websites offering virtual site visits and helping customers engage with housing loan companies. This practice has been continued even after the lockdown was lifted.

Social distancing norms and lockdown had discouraged the potential home buyers from visiting the sites before taking a decision. This forced many of the developers to go digital to present their schemes to the prospective home buyers. “The digital growth has acted as a saviour to the industry and has helped us to tide over the liquidity challenge by ensuring new sales and collections,” says JC Sharma, Vice Chairman and Managing Director, Sobha Ltd. Companies such as Godrej Properties, Sunteck Realty and Brigade Enterprises have launched marketing campaigns/activations during lockdown to generate sales. Even after the lockdown was lifted developers have continued to use these digital tools to engage even more with customers. While other developers may also launch similar schemes to generate sales, these tactics will only be successful in cases where the customer is certain about the quality and execution capability of the developer.

Some see opportunity in WFH concept

While established real estate companies with strong balance sheet are seeing early signs of revival in demand, the marginal players are still struggling to come out of various problems, the main being liquidity crisis. Kamal Khetan, the Chairman and Managing Director of Sunteck Realty Ltd says “looking at the current sales, I won’t be hesitant in saying that I’m pretty confident the Q2 might surpass the corresponding Q2 of the last year in presales. So, we are seeing that kind of demand especially in ready to move in product or near ready to move in products.” According to him the culture of work from home is good for real estate industry as the fence sitters (meaning those who are unable to take decision as to buy or lease) may be encouraged to go for own house. Also, people may feel that real estate is seeing its bottom and may not further go down which may also encourage them to buy a house.

Some eye market share gains through consolidation

On the other hand, Pirojsha Godrej – Executive Chairman, Godrej Properties, feels that developers with weak balance sheets going into this situation will have a difficult time surviving, which will create significant opportunities for consolidation and market share gains. “On the operations front, while construction activity has resumed on almost all our sites across the country, it has been severely impacted due to the complete lockdown for two months, followed by significant labor shortages which continue to be a problem. We expect the labor count to increase gradually and plan to operate at approximately 70% of the pre-lockdown workforce strength by the end of the current quarter. From a business development perspective, while we didn’t announce any new projects during the quarter, we have strong visibility on further project additions during the rest of the year. We remain confident of the future prospects of the residential real-estate market,” says Godrej.

Some are still cautious

However, JC Sharma, Sobha Ltd is slightly cautious while saying “Over the next few quarters, the situation will continue to remain challenging and dynamic. Developers will need to focus on timely execution and ensure that the sales volume momentum is preserved. As far as we are concerned, our focus on cost management, customer management, liquidity management and profitability management remain unwavering and it will get reflected in our performance as we move forward.” He is of the opinion that listed and large players are set to benefit from the revival due to the brand recognition, product mix offers and adhering to quality norms and delivery timelines.

Apart from these positive reactions there are certain other facts which may go in favour of realtors. For example, interest rates for home loans are at all time low which in itself a sufficient incentive to pull the potential home buyers. Further, property rates have not fallen much but at the same time have not gone up either in last 2-3 years. Also, some states like Maharashtra have slashed stamp duty on registration which is an added incentive for the home buyers. However, the home buyers may prefer to deal only with the reputed real estate developers. Also, the emerging trend shows that home buyers are preferring ready to move in houses rather than under construction ones.

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