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COVID-19's Impact on the Real Estate Sector in India: How are Houses in India, Offices and Retail Real Estate Evolving

Jul 3, 2020 8:42 AM 4 min read
Editorial

Through the course of the past several weeks, we have discussed the impact of the COVID-19 pandemic on various sectors of the economy, including some of the obvious ones like the automobile industry, FMCG and the retail sector, and some not so obvious ones like the sports and news industry - essentially the way we live, learn, work and entertain ourselves. 

We have a look at a sector, which perhaps touches all of the above mentioned i.e. Real estate.

 

Residential Real Estate in India

The nationwide lockdown brought all construction activities to a standstill. With a huge number of migrant labourers having returned to their hometowns, the recovery will be rather slow. Extension of deadlines and invocation of the force majeure clause only adds to the fire. 

Existing homebuyers, those who have already bought a house and are waiting to get possession are likely to face delays and losses.

On the flipside however, with a majority of the population now working from home, it is taking precedence over the workplace.  

And as per this fascinating article by FIRE Capital Fund, the pandemic is rekindling in first-time homebuyers the desire to own a house, one that was lost due to the newer generation preferring a rental house, considering proximity to the workplace may not be a major criteria going forward.

 

COVID-19's Impact on the Housing Sector in India

 

Cities such as Bangalore are also witnessing a movement away from the heart of the city to “greener” and “quieter” suburbs, towards sound economics of owning a house there vis-a-vis paying exorbitant rentals for living close to the city centre.

“There will be a marked preference for plotted residential developments or a floor thereof (“builder floors") over apartments due to lesser density, more open spaces and lower cost of acquisition.”

This movement will be further propelled by the Government’s Smart Cities project, which aims to develop infrastructure in tier II and III towns. 

While housing sales have over all been impacted by the pandemic - having plunged around 75%, long term trends appear secular. And with developers offering discounts and better payment plans to boost sales, the housing sector is more likely than not set to witness an uptick in demand. 

 

Student Housing/Co-Living in India

As per an EY report, the ongoing pandemic might result in a 20%-25% drop in rent for student housing facilities.

 

COVID-19's Impact on Student Housing and Co-Living in India

 

Co-living spaces, too, are likely to get impacted as most of them cater to students and office-goers. 

In this segment, while rental income is expected to take a hit, costs are likely to increase owing to increased focus on hygiene and sanitation. Number of occupants per room is also expected to decline. 

 

Retail Real Estate in India

We have already seen how high-street shopping centres are facing a double whammy with retail companies and restaurants renegotiating the terms of their contracts, while their financial obligations to external shareholders remain unchanged. 

Lower revenues and high fixed costs have led to a drop in margins for multiple retail companies and restaurants and many are now questioning their presence in a mall.

Retailers are likely to seek independent access to shops and showrooms, given the social distancing and hygiene guidelines.

As per the FIRE Capital Fund article, SCO (shop-cum-office) style strip malls and outlet centres in the suburbs with high-street shopping centres in the city is likely to gain prominence over large format centrally air-conditioned malls. And in these newer formats, retail would be centred more around food service, wellness, leisure and entertainment, with a diminished focus on shopping.

 

Office Space in India

Worldwide lockdowns to contain the virus have triggered a debate around the possibility of  work-from-home replacing office spaces in future.

With a majority of the Information Technology companies adopting the work-from-home model, requirement of a swanky office space will be greatly reduced.

In fact, with companies now rethinking their working arrangements to optimise costs and to provide more flexibility to their employees. While Some commentators feel co-working spaces may be the answer.

These not only offer customised and flexible seating arrangements but also provide flexibility in terms of time period of rental agreements. Coworking spaces can be rented on a monthly, day-to-day and even hourly basis.

But with health and hygiene taking precedence over space efficiencies, the tight densities prevalent in co-working spaces would have to be reviewed, which would have a natural impact on unit economics.

 

6-feet office
Source: Cushman & Wakefield

 

Lastly, enjoy this groovy concept courtesy real-estate giant Cushman & Wakefield for a “6 Feet Office” at their Amsterdam HQ with all sorts of ideas to help employees maintain social distancing and keep things clean.

FIN.

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