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Will there be a drop in property prices in India due to Coronavirus outbreak?

March 25, 2020

In times of the Coronavirus pandemic, many companies are asking their employees to work from home. By laying down some ground rules, you can make working from home more productiveThose expecting any reduction in property prices might be disappointed as property values, if anything, are likely to show an upward movement in the post Coronavirus world, based on several factors.

If a demand slowdown has been keeping price growth in India’s residential real estate market in check, the sudden Coronavirus outbreak, which threatens to drastically impact global economic growth as countries go into nationwide lock-downs to contain the spread, would wipe off any chances of value appreciation in the property market

PropTiger.com numbers indicate that nine major residential markets in India registered only negligible price growth in the past half a decade amid consumer sentiment hitting a new low.

Property prices in India’s nine prime residential markets

City	Average property value as of December 2019 psf	Net % change in average price over December 2015	CAGR
Ahmedabad	Rs 2,974	3%	0.6%
Bengaluru	Rs 5,194	11%	2.1%
Chennai	Rs 5,221	4%	0.8%
Gurugram	Rs 5,236	-7%	-1.4%
Hyderabad	Rs 5,318	40%	7%
Kolkata	Rs 4,035	4%	0.7%
Mumbai	Rs 9,446	15%	2.8%
Noida	Rs 3,922	-3%	-0.8%
Pune	Rs 4,874	2%	0.5%

Source: PropTiger DataLabs

However, those expecting any reduction in property prices, in the medium to long term, might be disappointed as property values, if anything, are likely to show an upward movement in the post-Coronavirus world, based on several factors.

Why property prices in India might not drop after COVID-19?

The Economic Survey 2019-20 pointed out that builders should allow prices to drop by taking a haircut as a remedy to reduce their inventory burden. However, a number of issues are at play which makes doing that a near- impossibility.

Developers are under tremendous pressure

In the top nine residential markets, developers are currently sitting on an unsold stock worth Rs 6.1 lakh crore. With buyers becoming fence-sitters, almost-completely making any chances of profit-making for a large number of builders out of question, sources of liquidity are also fast drying up with the ongoing non-banking finance companies (NBFC) crisis.

As it is, several big developers in the country have been dragged to the insolvency court by banks over non-payment of large-scale dues. If the demand slowdown problem persists for a longer period, more builders might have to face the same fate – a highly likely scenario in the backdrop of the contagion.

While the government has already decided to set up an Rs 25,000 crore stress fund to help builders complete their pending projects, an overall economic downturn would limit its capacity to focus on real estate and offer substantial relief. In a complex scenario like this, earning by way of home sales remains a builder’s only option. This makes price reduction nearly impossible.

In the meantime, project launch numbers would drop significantly on account of various evident factors.

Cost of supply materials to increase

Projects delays are on cards as supply of building construction materials that India exports from China is hampered in the wake of the pandemic. The impact of the situation would be more prominent on premium-luxury housing projects which rely heavily on supplies of fixtures and furnishings from China, the country where the source of the contagion has been tracked down to. The time gap will not only delay housing projects but also ultimately increase the overall cost of project building since builders here will have to rely on alternative sources to meet their building requirements.

The centre’s ‘Make in India’ program might get a boost from this difficult situation in the medium to long term, but short-term pains for developers are inevitable. Dropping prices in a scenario like this is hardly the answer. However, the government might launch measures that might make it more lucrative for buyers to invest in property. It is also expected to support real estate, the second-largest employment generator in the country, by waiving off tax on unsold inventory.

Interest rates to fall, home-buying to become affordable

The RBI is expected to reduce the repo rate, consequently making borrowing cheaper for homebuyers − home loan interest rates are already as low as 8%. Further reduction would act as a booster for buyers to invest in property at a cost advantage once clarity on the impact of COVID-19 on the job market is achieved.

While the government has already extended the benefits offered under Section 80EEA till March 2021, it might also consider extending it further in order to give a boost to first-time homebuyers. Experts are of the view that anxiety over impending job loss among consumers is likely to persist even after the worse is over and normalcy returns. The government will have to continue extending support till that period.

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Source: housing.com