The coronavirus outbreak and the ensuing nationwide has roiled the economy over the past six weeks. As the shock waves ripple through industry after industry, sentiment in the country's real estate market is now at its lowest on record.
A survey of real estate industry stakeholders in India conducted by Knight Frank, along with FICCI and NAREDECO shows that sentiment in the realty market has dropped to an all-time low of 31 in the first three months of this year. For Q1FY20, the forecast isn't much better at a score of 36.
A score of over 50 signifies ‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score of below 50 shows ‘Pessimism’, according to property consultant firm Knight Frank.
Since the score captures feedback from both developers and financial institutions, the reading for the future is clear: while developers will find it difficult to either complete existing projects or launch new ones, tighter credit will make it harder to fund new and old business as well.
"The lockdown will translate into a vicious sequence of stalled construction, delays in project deliveries, delays in loan repayments and debt servicing to banks and an overall slump in demand due to uncertainties in employment and salary cuts. All these factors have marred the future sentiment score of stakeholders", the 24th Real Estate Sentiment Index said.
A bounce back may easily take a year to come, the report says. “The real estate segment specifically will have a longer journey to make. This crisis has retracted the end-user confidence to its lowest levels ever, which will push any kind of real estate purchase decisions to the distant future. The already ailing real estate sector has been crippled with this pandemic, making it imperative for government support to bring it back on track", according to Shishir Baijal, Chairman and MD, Knight Frank India.
Real estate developers echo these concerns. “There will be a slowdown across the industry post COVID-19 crisis. The industry is facing an acute working capital crisis which is essential to restart the business and keep it moving. We have all pinned our hopes on government intervention to salvage the loss created by the crisis with its big fat fiscal stimulus to get the growth trajectory back on track " said Dr. Niranjan Hiranandani, Founder and MD, Hiranandani Group, echoing the industry's demand for a stimulus package from the government to revive economic activity.
70% of the stakeholders surveyed by Knight Frank also believe that the flow of funds to the real estate sector might get worse or remain at the current levels in the coming six months.Real estate sentiment in the fourth quarter of CY19 was at 59, and had just about started to recover with some signs of revival, when the outbreak of the pandemic set it back and pushed it deep into the pessimistic zone.