The coronavirus aka covid-19 is the modern pandemic which has been the talk of the world in the recent months and is going to be in the news till we find a vaccination for it. A global crisis which has got our social and economic order at a standstill in the blink of an eye, a phenomenon no one has witnessed in the past 100 years. With the coronavirus comes a lot of uncertainty – Questions like – When will the lockdown end? When will you be going back to work? Are we going to go through a recession? When is everything going to be back to normal? Are we going to be seeing a paradigm shift in the conventional way of conducting business? When we have no answers to questions like these all you are left with is panic and turmoil in the mind.
To break things down – Uncertainty makes the perception of people towards an economy unpredictable & to a great extent tilting towards the negative spectrum. Uncertainty does not only effect businesses but also effects households & financial markets. Predictions of a higher & more volatile inflation rate reduces the spending power of the people in the economy which in turn causes a contraction in economic growth or in some cases also negative growth. Kristalina Georgieva the Managing Director of the International Monetary Fund claims that this is going to be the worst economic fallout since the great depression which lasted more than a decade.
The Real Estate industry in India has been going through its own set of challenges with infrastructure companies taking up high leverage, the NBFC liquidity crisis, the increase in the number of non-performing assets and the over-supply of inventory in the market. To add to this now it faces the uncertainty of life after the covid-19 pandemic. Infrastructure companies who have high leverage upon their books have a double-edged sword, high leverage at times of economic boom magnifies profits & in economic crisis can be a great threat to the mere existence of the company. Right now, every realtor in the market will have a goal of reducing leverage by lowering the inventory piled up on their books to free cash flow. This will result in the rise of many below market distress deals in Mumbai to bridge the gap between supply and demand. Developers are predicted to take 20-30% haircuts on their profit just to reduce the debt on their shoulders. The current course of action based on priority will be to complete ongoing projects and wait till they liquidate most of the inventories before launching new projects.
People who are looking at real estate as a long-term investment with a 5-10 year horizon and have a stable salary income or a business that is giving them consistent returns, now will be the best time to start scavenging for properties in the market. One should start looking at distress deals that come their way by looking at both primary & secondary markets as options. The government is also taking reforms by lowering interest rates for homebuyers to take advantage of the interest rates of 7.18 – 7.80 per cent on home loans, the lowest they have been in the last 14 years. The government has also reduced the stamp duty by 1 % from 6% to 5% starting from the 1st of April 2020. There is immense pressure from the developer community to further reduce the stamp duty to a mere 1% to provide stimulus to home buying in the region.
The post lockdown covid-19 era will see a rise in the investor segment which had been dead for the last few years. Real Estate is one of the major asset classes in the world & we have seen it make billions in profit for people who invest strategically. Real Estate buying is going to be a lot like fishing, one will need to be as patient as a monk to look for great deals in the market. Every buyer should make sure they take on minimum debt on unless they have a stable income which is recession proof. It will be very important to have the right people guiding you through the entire process to make sure you get what best suits your needs & that it is worth every penny that you shell out from your pockets.