Real estate sector: Looking to emerge out of COVID crisis
The real estate sector in India has taken a severe hit due to the disastrous impact of COVID-19. Construction sites across the country are suffering from a shortage of workforce, with the labourers deserting project sites as the ongoing pandemic has forced the country to remain in lockdown mode. Due to supply-side constraints, building material too is reaching the sites at a snail pace.
The developers are also facing various other unforeseen circumstances such as a severe liquidity crisis due to lukewarm demand and heavy inventory pile up due to slow sales. The prevailing situation has obviously dealt a heavy blow on the entire real estate sector and it’s on the verge of moving into a negative growth cycle. However, there is now a glimmer of hope as the government is keen to push the real estate revival.
The government is considering converting the housing inventories funded by it across various cities into affordable rental housing under the PPP model. The developers’ body CREDAI has demanded an economic package just like the finance minister recently issued one for the MSMEs segment. CREDAI has also sent an open letter to the prime minister listing all its demands which include advice to bring down home loan interest rate to five percent to reenergise demand. At this moment, such a step will help recreate demand in the market. And it will also help them tide over the severe liquidity crunch they are facing.
The realtor’s body has raised its voice against negligible benefits of repo rate reduction by RBI being passed on to them as well as to the consumers. The banks have been reluctant to pass the accumulated benefits to the borrowers actually. According to CREDAI out of 2.5% repo rate reduction over one year, the banks have passed on the benefits of only 0.7% to 1.3% and that the realtors continue to get finances on higher rates.
Consequently, the CREDAI has requested the RBI to issue directives to the banks for transferring the accumulated benefits of repo rate reduction in full to the NBFCs and HFCS so that they could bring down interest on home loans as well as interest on project financing loans to the developers. Such a measure will turn out to be a panacea for the survival of the crumbling real estate sector.
Meanwhile, the Uttar Pradesh government has waived off penalty for the developers, even if a Corona infected person reaches the construction sites. It’s being looked as a confidence-building measure especially on part of the government which is doing everything to boost the confidence measures in the two prime hotbeds of affordable real estate segments in the entire NCR.
As per an estimate, currently, the construction work is going on at 250 sites in UP which also includes some government projects. The authorities are also in constant touch with the realtors’ body CREDAI and hearing their concerns and apprising them about various measures being adopted to tackle the prevailing challenges.
To support the consumers, the state government is also considering extending the one-time settlement scheme which ends on June 5 to another six months. This extension in the scheme will help the consumers as many of them have been faltering on payment of installments due to the current tumultuous situation marred with market uncertainties and crippled business activities.
Considering that the Real estate sector is not only the second-largest employer in the country, but it also contributes significantly to its GDP, besides over 11% of the banks’ credit goes into the demand created by it, the survival of the Real Estate sector is crucial for Indian economy.
