Good News! But what is the news? What is good news in the realty sector? Drop-in prices of property seem to be good news. Is this news good for everyone? It is not necessary that good news should be good for everyone. Good news may cherish one sector but may rumple the other. Drop-in prices of the property may cherish the buyer but at the same time may bring a loss to the developer or the seller.
TABLE OF CONTENT
- Quavering news
- Importance of homes
- Increase in cost of raw materials
- Pressure on developers
- Low demand at present
- Home buying affordable
- Demand for homes may increase
- In a nutshell
1.Quavering News
As we all have tasted the lashes of Covid19 in one form or the other, we cannot deny that it had not touched us. The pandemic has eventually gripped the entire world into its clutches and real estate was no exception. It was also crinkled in every possible way. All the activities of this sector came to a halt. After sometime real estate received a major blow when they got some shocking news; which was good for others but very destructive for the sector. The developer community was in a lather when it got the news that builders can sell the housing projects at reduced rates and let go of the high-priced unsold stock. They should sell off their inventory at whatever rates they get to produce liquidity. Though this was good news for the buyers, this news brought shivering and quivering in the real estate. Most of the projects were incomplete and couldn’t be completed due to the lockdown, reverse migration of workers, and the unavailability of the raw material. The sector has either to sell off at whatever price they get or hold on to the projects until the situation brightens up. It was a tough decision. But the sector decided to hold it as they were able to see some faint light at the end of the tunnel. They also knew that there would be no reduction in prices post-pandemic.
The residential real estate market had been maintaining the prices during the past few years, even though the demand had slowed down due to various factors. No doubt, coronavirus had hit the economy badly, but couldn’t shake the prices of real estate. In near future, there are no chances of a drop in value in the property market. No reduction in prices post-pandemic due to a few reasons as mentioned below:
2.Importance of Homes
After the pandemic, homes took up a new position and importance. The pandemic has dusted the fact that owning a house is way better than dealing with the qualms of living in rented accommodation. Having real estate as an asset is a much more reliable option than other forms of assets. A home is a multifaceted place that functions as a school, office, business area apart from its regular feature of giving shelter and sharing emotions of the family. Homes have proved to be the safest refuge during the pandemic. A few factors which may gain prominence after the Covid 19 need to be highlighted:
- a) Spacious homes as they have to perform many functions
- b) Spacious homes to maintain social distancing
- c) Affordable prices
- d) Health facility in close proximity
- e) Improved infrastructure to work from home
3.Increase in Cost of Raw Materials
As the supply chain is hampered in the wake of the pandemic, project delays are expected to prolong. This would become more prominent on premium- luxury projects because the supply of fixtures and furnishings heavily rely on China and it is not possible to import anything from there. Arrangement of an alternative new supply chain from our country demands time and increased prices. This change will not only delay the projects but also increase the overall cost of the project. Hence there is no chance of reduction in a prices-post pandemic
4.Pressure on Developers
Developers are the ones who are the fence-sitters guarding the piles of unsold and incomplete inventory. Sources of liquidity are also drying up. They need to complete the incomplete units. For this, they need the raw material and the labor which is still in the lurch. They need to hunt for local suppliers as the import of raw material from China is not possible in the present scenario. So the supply chains need to be transformed. Though a stress fund is sanctioned by the government for the builders to complete their projects, it may not cover up all their woes. Considering the depth of the current crisis, prices may not see a downward movement as the holding cost of the developers will climb while the pressure to liquidate the unsold inventory will increase. The new ‘Make in India’ project may give a boost when it kicks to start, but till then the short term grievances of the developers need to be addressed. One cannot think of any reduction in prices -post-pandemic.
5.Low Demand at Present
Due to the pandemic, the home buyers expected a drop in the prices though it may be difficult for many to buy a property in the present scenario. Despite the fact that the demand is low and there are piles of inventory with the developers, there seems to be no reduction in prices –post-pandemic. Even if there is a steep fall in the demand, there may not be any corrections in the prices because of the very nature of the asset.
6.Home Buying Affordable
The REPO RATE that has been reduced to 4% can make borrowing cheaper for home buyers. Home loans have become significantly attractive. The lowest home loan interest rates is an opportunity to fulfill the dream of life. It is definitely good news for those craving to own a house and even for those who are waiting for the correct time to take the plunge. It also creates an opportunity for potential home buyers. This will also support the economy. A moratorium on EMIs will keep the buyers elusive from the market. This will provide some relief to the developers and it will also give a possibility of no reduction in prices -post-pandemic
7.Demand for Homes may Increase
A home is a place that protects you at all times, be it financial, be it emotional, or be it the worst situation like the Covid 19. Home has undergone a change in its functions. It has now started taking up the responsibility of different fields. It now functions as a school, as an office, and for some as a place of business. Now that it has so many roles, then definitely its demand may increase. After facing all the miseries, people have now realized that one should own a house to keep oneself protected in adverse times as most of us have faced recently. With job losses and salary cuts, it had become very difficult to pay the rent during the pandemic. Owning a house has become a dire necessity. As the conditions get favorable, people will plan to own a house and then the demand for the homes may increase. With this forecast, there might not be any chance of a reduction in a prices-post pandemic.
8.In a Nutshell
Real estate is not a perishable commodity. Sellers can postpone the transactions until they get some margin on their property. That is the reason the developers are currently sitting on their inventories and waiting for the conditions to improve. Even though they have to pay tax on these inventories, they prefer to wait for the right opportunity. Hence there doesn’t seem any chance of reduction in a prices-post pandemic. Now that the development work across construction sites has started, though, at a slower pace, things might fall back in place very soon. Considering the demand of the present environment, Real Estate will make a comeback as an ideal investment choice. The market is likely to witness an upward spike in the purchase and investment sector because investors and home buyers would prefer safe and stable sources of investment. Real Estate assets are the safest investments to earn handsome returns. “Never depend on a single income. Make investment to create a sound source”-Warren Buffett Which investment could be better than real estate! There is no loss, only good returns but with patience.
Written by Nikhil Gattu
