The Coronavirus outbreak, which originated in China, has infected lakhs of people worldwide. Simultaneously, it has disrupted industries, trade, and business cycles, thus halting global economic activity significantly.

In usual times, the period normally sees an uptick in residential real estate activities owing to festivals like Ugadi, Gudi Padwa, Akshaya Tritiya, and Navaratri when new launches and housing sales spike up. Vacation time for Indian schools beginning April till June-end also gives time to homebuyers to make purchase decisions.

Unfortunately, 2020 seems to be different. Country-wide lockdown until mid-April has halted all activities. Project sites are shut, site visits are unthinkable, and construction activity has come to a  standstill, adversely impacting housing sales. Also, developers have deferred their new project launches for an unknown period. Apart from the residential segment, commercial real estate is also badly affected by  COVID-19. Corporate occupiers are seen delaying their leasing decisions and several MNCs and businesses are testing new waters of the work-from-home option. If it persists, it could affect leasing activities in the future. Retail businesses, highly dependent on consumer spending, are also witnessing a momentary slowdown and reduced interest from global brands who may now consider revising their expansion plans.

Indian real estate was just beginning to come to terms with the multiple reforms and changes brought in by demonetization, RERA, GST, IBC, and subvention scheme ban. While the sector found it difficult to align with the slew of reforms and changes, these measures helped fortify the sector and instil transparency, accountability and fiscal discipline over the last few years. While the sector was on a growth trajectory since the last few years and was likely to emerge stronger than before, the current coronavirus lockdown has surely put brakes on its growth momentum.

Industry estimates of the Indian real estate market, prior to the COVID-19 outbreak, were projected to be USD 650 Bn by 2025 and USD 1,000 Bn by 2030. Residential, commercial, and retail are the three key asset classes, which have primarily been contributing to the sector’s growth. Real estate contributed nearly 6% to India’s GDP in 2017. As per the projected growth trends during the pre-COVID-19 era, the sector’s contribution was likely to rise to 13% of India’s GDP by 2025.


After agriculture, real estate is the largest employment generator in the country. The sector creates tremendous opportunities for the skilled and unskilled workforce. It has also been instrumental in employing large masses of migratory populations that come to the metropolitan cities in search of work. As per industry estimates, 90% of the workforce employed in the real estate and construction sector is engaged in the construction of buildings, while the rest 10% is involved in the rest of the activities. More than 80% of the employment in real estate and construction comprises a minimally skilled workforce, whereas skilled workforce accounts for just over 9% share, and the remaining are spread across work classes such as clerical, technicians and engineers.

FDI in Construction

Foreign Direct Investment (FDI) in construction development: townships, housing, built-up infrastructure currently accounts for only 6% of the total inflows from April 2000 to December 2019. A quick comparison of the absolute inflows between Apr-Dec 2017 with Apr-Dec 2019 shows that the investments in the sector in 2019 reduced by 7% as compared to 2017, indicating that FDI has already slowed down. Amidst the COVID-19 uncertainty, it is anticipated that the forthcoming quarter of the current year may witness a further decline in FDI inflows into the sector.

The Indian real estate sector needs to exhibit immense resilience to overcome the current situation imposed by the novel coronavirus. The sector has been successful in overcoming many challenges in the past and has stood up in the most turbulent times. Unfortunately, the testing period and the trials keep coming back at regular intervals and it is surely going to hurt the sector but may also fortify for the years to come. India’s improved rank on Ease of Doing Business and the courage to implement reforms such as DeMo, RERA, and IBC are indeed creditworthy. These are expected to yield fruitful results in the future and help establish Indian real estate as a preferred destination for global investors, occupiers, and homebuyers.

COVID-19 impact on residential real estate sector

COVID-19 is all set to hurt the Indian residential real estate sector already grappling with subdued demand and liquidity crisis. Since the majority of workers are migrants, labour shortage could emerge as a major challenge for the sector post-COVID-19 current lockdown. Several migrant workers who were forcefully trying to migrate to their hometown were stopped by the authorities and forcefully quarantined at the state borders. While a few are likely to go back to their villages, others may come back to the project sites sooner.

As a result, construction activities are set to be delayed with many developers and contractors facing a shortage of labour and a more pronounced liquidity crisis. As is, the Indian residential sector was caught in the grip of delayed project deliveries, liquidity squeeze for developers, high unsold inventory, and a growing proportion of stalled projects. The liquidity crisis also led to significant job losses in the past. As per industry estimates, around 300,000 workers had to be laid off as developers were unable to process their bills.

As developers were overleveraged, the corona crisis has made the situation difficult to retain employees. It is anticipated that in the short-to-medium term, employment levels are likely to be affected significantly. Apart from construction, the retail sector is another major source of employment. As malls and non-essential business establishments have been currently shut down and will continue to remain so until the pandemic is under control, we believe that there will be a reduction in manpower to the tune of 10% to 20%, primarily those employed in the housekeeping, merchandising and maintenance of facilities.

Commercial Office Sector

Indian commercial office sector has been on a growth trajectory with corporate expansions led space absorption attaining a peak in 2019. Major occupiers committed to large spaces to accommodate their ambitious growth plans. Despite global slowdown early this year due to trade war, the Indian office market remained insulated as occupiers looked to expand their operations. The ability of Indian cities of offering sub-dollar rental values for ITeS companies and sub-one and half dollar rental values for IT companies drove consistent growth in leasing. Net absorption in top 7 cities was recorded at 40 Mn sf in 2019, growing by 19% over 2018.

New completions also kept pace with rising demand and stood at 46.5 Mn sf in 2019, recording 21% yearly growth. The overall vacancy remained almost stable at 14.4% by 2019-end. However, this vigorous run of office real estate over the last three years is expected to witness some deceleration in 2020. Shrinking Indian economic growth coupled with global economies’ sharp reaction to the ongoing COVID-19 pandemic will certainly impact the Indian office segment. SECTION 2As is, India’s GDP growth rate slipped to 4.7%, a nearly 7-year low, in Oct-Dec 2019 quarter, and amidst the current turmoil, its improvement surely seems bleak.

The magnitude of the current slowdown on the office segment is tough to predict as the world, particularly the First World, is still reeling under the impact of the virus. Considering the present scenario and assessment of past global crises in the last decade, ANAROCK Research estimates that supply and net absorption will be significantly lower in 2020. Predictions for 2020 are based on the previous period of sluggish demand experienced in India during 2012-14 and the global economic crisis of 2008. Both these periods seem relevant as the Indian office segment has a direct and proportionate correlation with economic activities. It is also heavily dependent on global companies that expanded their operations in India and have been driving demand for Indian office real estate.

Delays to adversely affect supply

The office segment has been growing at an impressive rate over the last three years. The supply has been on the rise each year and the absorption has also been good. Based on the trends, it was estimated that the supply would have been around 47 Mn sf in 2020. This would have been the highest supply infusion in the decade.

Projects that have significant levels of preleases and are nearing completion may get delayed by a quarter or two but are likely to be ready for fit-outs by this year-end. Some developments that are still to secure leases and commitments from occupiers may get spilled over to the next year as some developers may not be willing to pay out a large fee for Occupancy Certificates (OC) if the majority of their projects’ space is not leased. However, owing to the prevailing crisis, the supply is surely going to be affected.

Reduced demand

Amidst the pandemic and the global health crisis, the demand for office space is likely to drop. As many occupiers may not be able to assess the impact until the situation is resolved, they will reassess their position. While there will be some significant slowdown in their businesses, the expansion or consolidation plans may also be shelved.

Source: ANAROCK Research

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