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A timing problem

The disease could not have come at a worse time. Just when hopes surged, the real estate sector has been brought down again

Real estate, Covid-19, Rishi Jain, Jain Group, Arya Sumant, Eden Realty, Abhishek Bhardwaj, Shristi Infrastructure Development Corporation, Niranjan Hiranandani, Hiranandani Group, Sanjay Jain, Siddha Group, ANAROCK, Anuj Puri, Boman Irani, Sanjay Dutt, Ashish Puravankara, Puravankara Limited, Tata Realty and Infrastructure, Rustomjee

The Holy Bible talks about a lockdown when Noah built the Ark, and God sent down rain for 40 days and 40 nights and caused the great flood. But after that came the respite for mankind and also relief.
Perhaps after thousands of decades, mankind is in another forced lockdown staying in the arks of their homes. India alone would have spent exactly 40 days in lockdown by May 3. But this lockdown is different. Moreover, there seems to be no consolation in sight.

The world is a far advanced place than what it was at the time of Noah. The current lockdown has dented the balance sheets, morale and mid-term future of economies globally. As a construction and infrastructure magazine, our concern is for the industry has been providing livelihood to millions while contributing almost 8-9% to the GDP.

The government and relevant authorities must take this industry under its mantle (of course, without excluding the manufacturing sector) and ensure that it stays upright.

Relearning the ropes
The construction industry is watching with great expectations. Fingers are crossed. Wise men tell us that when the darkness comes, stars appear in the sky.

For long, resilience has been every man’s middle name. Like the Israelites said after the destruction of Jerusalem: “The bricks have fallen, but we will rebuild with dressed stones. The sycamores have been felled, but we will replace them with cedars.” That’s the spirit.

Despite this, the most thought provoking or motivational phrases fall on deaf ears. But men must not despair. To better understand the state of the industry and their mindset, we list out some of the thoughts our real estate leaders have to say:

Rishi Jain, MD, Jain Group: This is the best time to consider investment on sources of passive income. People value assets that are tangible and give them increased RoI. That is where real estate comes in. The impact of this outbreak has led to slowdown of construction. Work is expected to resume fully once the lockdown ends. The focus of realtors now lies in providing affordably-priced projects. The revival of the real estate economy will only be possible if there is a provision of comprehensive packages from the banks in terms of liquidity and cash flow. The government will also have to exempt construction delay penalties under RERA Act. Construction slowdown might affect new sales since buyers would prefer nearly finished projects.

Arya Sumant, MD, Eden Realty: We will see few new projects launched next couple of years. Only those projects in advanced stage might be launched. Prop-tech is going to become extremely important going forward; we will have to look at ways of completing the entire transaction from presales to post-sales online. It is difficult to envisage this penetration of virtual technology in real estate, but we need to make a push and give it a real opportunity to succeed.

Under-construction projects will have to come up with ways to convince the buyers that real estate is one of the best investments they can opt for in the present market scenario especially with RERA/HIRA allaying any credibility issues.

Abhishek Bhardwaj, chief marketing officer, Shristi Infrastructure Development Corporation: Post-COVID, contrary to popular belief, housing demand might just go up, though slowly. The extension of the filing tax returns with extended facilities means home buyers will have the incentive to avail benefits on home loans. Reduction in registry rates will be a catalyst. Integrated townships will be the preferred option because of the facilities they offer. ‘Recovery packages’ from policymakers will act as catalysts for the sector to return to pre-COVID levels again. Digital platform in terms of online selling offer lucrative advance online offers.

Niranjan Hiranandani, founder & chairman, Hiranandani Group: As we work on measures, in terms of restarting work on construction sites, there is a need to counter balance measures on both, demand and supply side. A further reduction in home loan rates will act as stimulant when it comes to reviving demand. There is a need to facilitate last mile funding so that the lender does not get affected by any insolvency or bankruptcy proceedings against the developer. This would go a long way in ensuring quicker action in such cases, enabling the project to get completed. About Rs 6.9 lakh crore are parked by commercial banks with RBI under reverse repo. This can take care of existing debt rollover issues, there is an urgent need to bring this amount back into circulation.

Sanjay Jain, MD, Siddha Group: Post lockdown, we will have to undergo changes in our habits and the way we operate, impose some restrictions in order to protect ourselves and others. I am expecting positive action from the Central and state governments to boost the industry in the form of stamp duty changes, input-benefit on GST and reduction in interest rates on home loans.

Sujay Kalele, founder, TRU Realty: Developers have started realising the importance of investing in technology. Customers will be more inclined towards investment in fixed assets like RE. Focus will shift from push sales to pull sales; quality of product becomes important factor in decision making. ash flow management will play a very crucial role as capital leveraging will get reduced.

Excerpts from an ANAROCK report
The Indian residential sector has been grappling with subdued demand for the past few years. In an attempt to stay afloat amidst changing dynamics, developers tried to pull all levers like restricting supply, focussing on execution, reducing unit sizes and developing affordable housing projects. However, the liquidity crisis initiated by IL&FS fiasco and subsequent fallouts of various financial institutions further impacted residential sector.

Amidst these changing dynamics, PE players shifted their attention totally towards commercial assets. As per ANAROCK Research, residential PE investments’ share of the overall inflows declined from 53% in 2015 to a mere 8% in 2019.

More than 15.62 lakh units launched between 2013 till 2019 across the top 7 cities of India are in various stages of construction. Of this, MMR and NCR together comprise 57% or about 8.9 lakh units. With India being locked down until mid-April 2020 (as per the current advisory) there will be massive disruptions in the construction material supply even after the lock down ends, leading to disturbances and delay in the construction activity.

In our opinion, construction delays might run up to several months for well-funded projects, while for others, the delays may even be to the tune of a couple of years. Being declared a national disaster, even RERA will be ineffective in getting homebuyers to recover any penalties. Thus, they will have to brace for construction delays.

The new launches across the top 7 cities of India began recovering gradually since 2017 as the dust of structural changes and policy reforms settled down. However, owing to liquidity crisis, the pace of new launch growth declined gradually. On annual basis, new launches grew by 33% in 2018 over the previous year and in 2019 growth seen was only 21%.

In this backdrop, in our opinion, in 2020, new launches are likely to register an annual decline to the tune of 25%-30%.

In 2020, residential real estate sales are likely to register an annual decline of around 25%-35%.
Amidst the current COVID-19 outbreak, we believe that the most affected segment of the working population is the target group for affordable housing developments. These homebuyers with limited income and lack of work from home facilities may have to face loss of pay or even jobs and may reconsider their purchase decisions. With affordable housing units accounting for around 36% of the overall unsold inventory across the top 7 cities as of Q1 2020, this segment was already being tested and the current pandemic outbreak has further worsened the situation.

Survival of the fittest and financially strongest is the new norm in Indian real estate and we have witnessed a rise in the share of new launches by branded players. As per our research, the share of tier I developers in 2018 new launches was around 56% as compared to 41% in 2015. In 2019, this share increased as liquidity crisis hit the weaker players significantly.

In our opinion, this consolidation phase is likely to continue amidst the current COVID-19 outbreak and as we emerge from this pandemic, many weak players may cease to exist.


Construction Week organised a webinar, The business of survival, on April 24. The speakers spoke eloquently on the state of affairs and how the world will change when it resumes business.

Anuj Puri, chairman, ANAROCK

Collaboration is the key and answer to several problems. The situation today is like a tunnel that is inundated with water and one is clueless about what is on the other side.

Human behaviour is going to undergo a sea change. Desgn will change. Density in office space is so high and that will change.

Reasonableness in everything will start coming in. Two things struck me as they were talking: Don’t have bad behaviour and don’t have trust deficit.

The future is going to be about new business models. Re-innovating will take place. The past downturns and today’s situation is not the same. The 2008 downturn had its own challenges, but today the entire globe is compelled to change.

Different asset classes behave differently. Hospitality, retail and commercial have been hit the hardest now. While many developers were overleveraged, the current pandemic has made the situation grim to sustain employment levels. It is anticipated that in the short-to-medium term, employment levels are likely to be affected significantly.

India’s improved rank on Ease of Doing Business and the courage to implement reforms such as DeMo, RERA, and IBC are creditworthy. These are expected to yield fruitful results in the future.

Ashish Puravankara, MD, Puravankara Limited

I think every past event has been a reset. We have seen both sides being paralysed – demand and supply. In the past, this was not so. Why demand stayed impotent, supply continued. But now this is not the case. Now it has been a hard reset. People need to sit back and think about what they want to do. Life has changed and will change further. Product profile will change.

People need to put pen to paper and sit with their leadership teams and work out newer strategies. Today, it has become imperative to have two buckets of thoughts – short-term and long-term.

Short-term today for a developer means cash flow. It could mean incentivise collections, which means they make their payment that is due on time.

Only people with cash flows and ready lines of credit will weather this storm. Digitisation is what is also helping us. We have sold close to 100 units last 15 days through an online platform. We are seeing various successes with these initiatives. Going forward, labour will be a challenge. Will developers be able to construct on time? The government is offering extensions, but that means an increase in costs.

Boman Irani, CMD, Rustomjee Group

The world is experiencing unprecedented challenges from COVID-19 and I hear the economy will take 12-18months to come back to normalcy. Around the world, governments are stepping in and it’s my personal belief that there will be an overall package to support all industries & avoid massive job losses.
Depending on the size of the support/stimulus we will see the impact on the industry. There exists a strong demand for homes (fortunately) & a stimulus in terms of income tax relief. The state government should consider giving concessions on premiums, stamp duty and ready reckoner rate to make home buying more affordable.

Migrant labourers are probably waiting for the lockdown to be lifted & there will be a shortage of labourers on site for some time.

Hopefully, developers will be in a position to get support from banks & FIs to manage this rough tide.
Post Covid-19, the only place companies are willing to invest is in automation & digitisation. The same applies to real estate as well.  

As of today, the only focus for most developers is the safety and well-being of their labour and their people.

Sanjay Dutt, MD & CEO, Tata Realty  & Infrastructure

The last 8-10 years has been full of disruptions. It has become necessary to become relevant to the new markets and business. There are many who are thriving even during this disruption. So if real estate goes through some consolidation, it’s quite natural. Developers wanted to expand, then they contracted to their home markets. Now they are selectively expanding. We have seen a number of new entrants who have now matured.

Developers have taken time to take recourse to digitisation. But that started last 3-4 years. From land surveying to last mile asset management, everything is on digital platforms. However, governments need to go digital too instead of having people to queue up to register homes.

People will become far more resilient than we were. H1 of this year is over. One may see some sales, but that is very little. It’s disappointing that access to capital is not easy even though interest rates have come down.

Challenges bring their own opportunities. Once we get access to capital and move ahead with projects, I have no doubt that we will move ahead and find opportunities and growth. One has to see the line of sight for next two years.

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