Emerging opportunities for Real Estate in global Pandemic

The current situation of lock down due COVID19 corona virus pandemic has brought major havoc in every sector including real estate and has been shaken the economy all over the globe. As there lies an opportunity in every crisis so is in COVID19. According to the survey by ANAROCK based on consumer sentiments, published in Financial Express says all industries including the Real Estate sector in India are now diligently working to innovate and strategize their business. Among the key noticeable trends, the residential sector is all set to embark on a different growth trajectory with ‘home ownership’ gaining significant preference among the new-age millennial and Covid-19 hasn’t dented demand for affordable homes.

New emerging trends to be followed

Nowadays people are largely favouring risk-free investments and they are finding it in real estate. Millennial find Real Estate as the best asset class as these assets are undoubtedly rendered higher security during exigencies such as COVID19 or when stock markets face new lows and financial markets witness a turmoil. 82% of buyers booked their homes before or during the pandemic and lock down in the metro cities. Digital sales were extensively focused by the developers in a pandemic as despite lock down they were able to close sales. Also, what changed the buyers’ mood was the lower interest rates on home loans, ranging between 7.15% and 7.8%. It has been found in a survey that demand for affordable homes hasn’t declined as 36% of the respondents’ preferred properties within 4.5 million rupees budget. Buyers who had higher budget also reduced it due to such an exigency situation as they don’t want to lock down large amounts in this crisis and buy a functional house based on their needs. Developers with low execution risk are higher in demand by 62% buyers as mentioned in the survey report. Many buyers preferred higher-priced properties from branded developers which have low execution risk compared to those with low price but high execution risk. On the other hand, investors are looking for ready-to-move-in homes compared to those which are under construction as the activities are completely stopped all over the country.

Demand for residential space expected to grow sharply. Source : Indian Brand Equity Foundation

Gain of Real Estate in Budget 2020

Considering the goal of ‘Housing for All’ in affordable prices, the Finance Minister, Nirmala Sitaraman announced additional deduction of Rupees One Lakh Fifty Thousand for interest paid on loans taken for the purchase of affordable houses in Union Budget 2020. Furthermore, a tax holiday is provided on the profit gained by developers of affordable housing project approved by 31st march 2020 to boost the supply of affordable houses. The Finance Minister extended the date of approval of affordable housing by one year to promote the affordable housing project by availing the tax holiday. The Finance minister has proposed concession in Real Estate transaction as The Economic Times says: “Currently, while taxing income from capital gains, business profits and other sources in respect of transactions in real estate, if the consideration value is less than circle rate by more than 5 per cent, the difference is counted as income both in the hands of the purchaser and seller. To minimize hardship in real estate transaction and provide relief to the sector, FM proposed to increase the limit of 5% to 10%.”
The Government would be investing Rs. 100 lakh crores in the next five years on infrastructure which consists more than 6500 projects across sectors like housing, clean drinking water, access to clean and affordable energy, healthcare for all, educational institutions, modern railway stations, metro and railways transportation, logistics and warehouse etc. The Finance Ministry has also proposed cooperative societies to be taxed at 22% plus 10% surcharge and 4% cess with no exemption/deductions and exempt them from Alternative Minimum Tax. They are charged at the rate of 30% with surcharge and cess.

Reverse Migration to tier II, III cities will play important role

Reverse Migration is taking place all across the country from metro cities to tier II, III cities which will increase the housing demand initially in the rental segment according to the survey published in the Economic Times. It also said that currently, the top seven cities account 70% of the residential market and the remaining 30% are in tier II, III cities which are most likely to change in the coming days.
“Indian real estate is bracing itself for a very new post-COVID-19 world. One significant trend may be reverse migration spurring housing demand in tier-II and III cities,” said the report titled ‘India Real Estate: A Different World Post which was published in the Economic Times.
Reverse Migration of the professionals who lost their jobs in the metro cities would become main beneficiaries for the cities like Lucknow, Indore, Chandigarh, Kochi, Coimbatore, Jaipur and Ahmedabad as these returnees will benefit from the cost of living and superior infrastructure that many Tier 2 and Tier 3 cities provide. Anuj Puri, Chairman of Anarock Property Consultants told the Economic Times that, ” Reverse migration is already very visible among migrant labourers, and this trend can further percolate to skilled professionals who have been or may be off-rostered. Smaller towns and cities would consequently see a spurt in housing demand.”

Migrant workers queue up to board buses in a desperate attempt to go home. Source : India Today

It is also expected that initially, the primary demand would be towards rental housing, the purchase demand is likely to come from local investors who are keen to meet rental demand.

Reverse Migration: food, e-commerce bring jobs closer. Source : Business Standard

As reverse migration is taking place, E-commerce and Food Tech companies who had always attracted youths for the job opportunities are now rapidly expanding their footprint beyond the metro cities and creating jobs in smaller cities. “Many NRIs will also return to India amidst dwindling job prospects, particularly in the US and European nations which account for nearly 70 per cent global cases. For them, the top seven cities would be the best options but many will consider smaller cities where they can be close to their families” Puri said to the Economic Times.
After exploring all these possibilities, it is high time for the Real Estate sector to come back on track and turn this crisis into opportunity.