Amidst the uproar that the novel corona virus has caused globally, it has effectively silenced the international real-estate market. That is by creating one of the most drastic plunges it has ever dealt with. More than anything, investment in the 4th estate remains to trump any other kind, affecting each and every pawn in the transaction from tenant and landlord to broker and insurer, making it a major, if not the sole factor capable of bringing a country’s economy back on its feet. However, the halt in the construction industry hasn’t done any good, along with unemployment and pay freezes on the rise.
India went under what was considerably among the biggest and strictest nation wide lockdowns ever, which undoubtably took a huge toll on its economy. The real estate industry itself accounts for 43% of the country’s stock market and about 29% of the total GDP, however, as compared to the second half of 2019, a 5-20% price drop varying depending on location, as well as a 56% drop in real estate launches was shown between January and June of 2020. For Mumbai, the hotspot of real estate investments, to have had the biggest wealth erosion in history just goes to show how grave the hole the virus has left the economy in is.
What we know for sure is that given the impact, the real estate industry is promised to change in more ways than one. With a change in employment dynamics and more work from home jobs, the home will gain significance over a place of work and will definitely be the reason choices in investment begin to differ. Over the last decade or so, as more youth entered the economically active segment, the demand for renting homes became more popular as compared to owning one. In a financial crisis like such, that mind set is quick to change as 4th estate investments can provide a greater sense of security and backing, the importance of which people are soon to see once again. As we add in the factor of work from home flexibility, there is no longer going to be a constraint of choosing a home based on commute, allowing people to move out into suburbs and de-densify metropolitan areas like Bangalore, Indore, Chennai… this is bound to create developments in metros and over all infrastructure surrounding these cities. Online shopping will be affecting properties like malls and other recreational centres, as demand rises for individual shops and showrooms. In the hospitality sector, quite the opposite is projected, where smaller guest houses, motels, and room services are to decrease in demand while larger chain hotels will continue to stay afloat. We can also expect a structural change in the office environment, especially in decreasing costs, massive buildings, and properties could be less appealing when compared to more independent set-ups.
As the industry changes and the economy tries to recover, contrary to what may be first assumed, investing in real estate right now may just be a futuristically beneficial idea. The world’s economies are digitalising, faster and more so than before, altering the way businesses operate from now on. It was no surprise that along with other markets, that the real-estate sector would be soon to follow this path as well. Increasing investments in this sector during a time like such would be the result of a few major factors. Adoption of technology and technological means of operations will play a huge role, especially in aiding realtors and brokers. India is among the top 10 countries for real estate software marketing with the greatest scope. The flexibility that technological avenues in this sector will give will do wonders in bringing demand back up. Virtual tours, communication and more user friendly personalised online services are exactly what will build the digital infrastructure needed. Behavioural economics and psychology are determinants of this demand however, which is why while technology will become more convenient, to actually muster up demand and legitimate investments, the emotional aspect and personal connect will need to be engrossed right into the new system and process of doing things.
With changes in consumer behaviour, as mentioned before, the focus of investment is going to shift from commercial to residential property. Recognising the need, through the Pradhan Mantri Awas Yojana initiative, the government is taking a part in protecting and backing the affordable housing portion of real estate. The central bank also reduced home loan interest rates. The .25% reduction in the reserve repo rate will help make liquidity become an easier process. Payments for commercial real estate asset class loans have also been given a 1 year period to be deferred, which will allow more time for construction and development of property as well. Furthermore, the credit linked subsidy scheme for the middle income segment has been extended to march of 2021, maintaining the affordable housing segment. Enforcing an affordable rental accommodation scheme for migrant workers and the urban poor and entirely new investment class was formed. Additionally, Deepak Parekh, chairman of HDFC urged the reserve bank India to permit a one time restructuring of real estate loans to ease the financial stress without having to issue bail out schemes instead.
The issue in making an investment in the 4th estate is no longer in consumer confidence, but rather in the proceedings of the central bank, and how well the industry is able to digitalise to maximise their demand. Already destined to face changes, if this market doesn’t see a strong recovery, it is unlikely for the country to find its way out of the financial crisis that it is in. The prosperity of this market will propel jobs, income, investment, and over all better living conditions, especially for the middle class in conditions like they’re currently in now. This is precisely why innovation in the market as well as central forces will always look to increasing the demand and bettering this sector first, especially by providing the most favourable to consumer conditions they possibly can. Given that they’re doing exactly so currently, not just high, but middle class families and citizens may benefit in the long run, by investing in real estate now, offering a chance for the rest of the economy to build back up and give themselves a more secure future.
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