Covid-19 : Design disruption in real estate industry is inevitable
Anil Muthyala, managing partner, Vishnu Priya Group & Aspire Infra, says that the industry can expect far more changes than meets the eye
The key to success in the real estate industry is to maintain steady cash flows. In the past when the industry was performing better compared to the other markets, all the stakeholders including the financial institutions and even the homebuyers have reaped the benefits of this. The construction industry has seen a downfall in the last three years and its effects are seen with delayed/stalled projects as well as in the customer sentiments to postponing the home buying decision.
Covid-19 has posed an unprecedented situation and the industry is slowly coming to terms with it while trying best to adjust to the new requirements and guidelines to sustain operations. Cash flows have taken a major hit from the time the entire nation went into total lockdown. The homebuyer's budgets and requirements have changed during this time as well. Buyers are now more inclined towards low-budget homes but at the same time reluctant to compromise on some of the design features like having WFH facility and better ventilation etc. we have seen the budgets for inquiries have come down by 30% compared to pre-Covid days.
Developers have taken this adversity as an opportunity and went back to drawing boards to redesign the upcoming projects and remodelling the ones already built. The traditional 2BHK & 3BHK trends are now changing into studio and 1BHK, where the living space has not been compromised but the built-up areas have drastically come down. Architects are planning creative designs to cater to the customizations of buyers. For example, a studio and 1BHK will be combined to make it a 2BHK, etc. For projects that are already in progress and that are ready-to-move, the designers are coming up with innovative plans and ways to make minor changes and still appease the buyer's newfound requirements as well as offer new-age & flexible payment terms. Real Estate industry is witnessing a paradigm shift in terms of designing and the trend of smaller spaces for home is aligning with our Prime Minister's dream of housing for all. It is time for everyone related to industry be it be architects, designers, developers, etc to embrace the trends of building smart homes within budgets for the end-user.
In a typical home-buying scenario, a customer would do multiple site visits to understand the project and there was never a case where home purchase happened without prior site-visit, either directly by the purchaser or his family. A dedicated salesperson with good experience is assigned to the prospective buyer as well. Last 3 years we have seen the closure rate is not even 20% of the entire prospective buyers. The COVID-19 situation has created a unique challenge, especially in the housing industry. Due to lockdown and restricted movement, the site-visits have come down drastically. This has cascaded into affecting the sales numbers and cash-flows apart from other labour and material challenges seen in the last few months. All the State regulatory authorities (RERA) have also acknowledged the situation and extended the project completion deadline for another 6 months.
Thanks to the technology and willingness to adapt, site-visits are now happening virtually, especially in the projects that are ready to move-in. All those serious enquiries are now showing interest to take a virtual site-visits and getting their questions answered all while sitting at home with their families. Even though the number of prospective buyers has reduced, the closure rate has gone up to 40%. This is very encouraging to the industry and calls for embracing the new-age digital platform to do the business.
The challenging times have also brought an opportunity to the industry since everyone considers home as the safest place to be. Those projects that are completed and ready to move-in is attracting buyers and making a good amount of sales. Developers are offering price discounts along with flexible payment options to the buyers to take the sales to closure. We are seeing that enquiries in the last 3 months are inclined towards ready to move-in projects. There are hardly 20-30% inquiries for the new launches or those just had begun construction. The reason for this is homebuyer/investor does not want to invest a large amount of money for something coming in the future by cutting on their life savings.
The construction industry has consistently yielded a good return on investment. Real estate, specifically home buying is still the No.1 investment option in this country. Now all that matters is what are the options for those investors who want to bet on the future with the least risk. Based on the inquiries we have seen, the investors' budgets have shrunken by almost 50%. The affordable housing segment which is already offering low-cost solutions is not able to attract those buyers and investors. The reason being affordable housing is either situated on the city outskirts or the design specifications do not match the requirement. There is a need for such a design which is fitting the budgets and inside the Urban cities.
Developers along with architects and planners are going back to board to design such spaces without compromising on the specifications. If you look from an urban homebuyer's perspective, they cannot compromise on the ventilation, good balcony, kitchen with dining area, and a guest bedroom. In a typical design, all these specifications will add up to 1200 Sq.ft for a 2 BHK. Owing to the high land price in urban areas the cost for luxury 2BHK can range anywhere between 60 lakhs to 80 lakhs.
To reduce the budget for the same housing in the same location to range from 30 lakh to 40 lakhs, there has to be significant design modifications and planning. If you look at densely populated metropolitan cities across the world like Hong Kong, London, etc, to cut the cost of real estate the dwelling areas are significantly reduced to accommodate the budgets. Architects have come up with innovative living space ideas that can adapt to the requirements. They call them Smart living spaces, where a dining space can become a working space, the living area can become a guest bed, etc. All this can be done by intelligently designing the ventilation and using smart furniture that can fit seamlessly in the house.
Ready to assemble furniture and smart home accessories are playing a vital role in effectively utilizing the limited spaces. IKEA the world's largest furniture store has already seen this opportunity and ventured into the Indian market. They are already working with many leading developers in the country to smartly design ready-to-move-in furnished homes. This will cut down the cost of interiors by 30% or more and at the same time buyer will have a plethora of options to choose from as well. Furnished homes will cut down the turnaround time for the homebuyers to move-in to their dream home sooner. Also, the developer can plan the project completion and handover is a systematic way. This will be the new norm in the housing industry going forward.
Architects are even thinking one step ahead in this scenario of matching budgets and specifications by developing innovative floor plans options. Homebuyers are provided with multiple options of floor plans to choose from depending upon the individual requirement. Instead of having the same floor plan for all the units, customers are given options to choose from. Also, the feature of combining two smaller units to make it a bigger floor plan is given for those who opt for such a bigger unit.
The real estate industry by its very own nature has been resilient to internal and external factors. Despite the negative factors in the last three years due to various policy changes etc, this industry was quick enough to adapt and make necessary changes. The current pandemic situation is also a game-changer in this industry. Policy changes have made this industry regularised and now the current adverse pandemic situation will bring in technology shift and design of smart living spaces so that homebuyers can take maximum benefit along with risk-free and happy move-ins.