When the initial wave of Covid-19 hit the country last year, the country’s real estate sector, developers, and property agents handled it brilliantly. As a consequence, they were able to reduce the effect on property values, particularly in megacities. The ascent of the second wave, on the other hand, is expected to have a significant influence on the market.
According to a Reuters survey released on May 21, 2021, the destructive effects of the second COVID-19 wave in Asia’s third-largest economy would slow price rise by crushing demand and balancing the government’s advantages to real estate developers in the form of subsidies and incentives. Analysts forecast a 1.3 percent average increase in home prices during a poll conducted in January 2021.
Furthermore, the initial wave of viruses created a need for a house in people’s brains, which aided developers in creating a demand momentum. However, there is a chance that this momentum will be disrupted by the second wave.
Nevertheless, if you look at the past trends of the housing sector in the country, the industry has been processing at a good and stable rate since the year 2015. Therefore, the chances are that property prices may rise. Fortunately, several other factors indicate the escalation in the price.
Increase in The Cost of New Projects Due to a rise in The Cost of Raw Materials
Although, in the first quarter of 2021 (January to March), there had been a significant rise in housing sales. In some major cities of the county, annual growth has grown up to 5%. Besides that, a poll conducted by Reuters also shows 1.3% of rice in average housing prices, which is expected to reach 4.5% by the end of the year.
With the surge of the second wave as well as lockdown restrictions, the sector faced a slight hitch. The prices of raw materials, namely cement, copper, aluminium, plastic, steel bars, resin, and man-made polymers, are rising. This rise in prices is somehow restricting the sector’s recovery and pressuring the builders to increase the cost of new projects.
Annual Property Price Growth-City-Wise
| City | Average price as on March 31, 2021 (in Rs per sq ft) | % Annual Growth |
|---|---|---|
| Ahmedabad | 3,234 | 5 |
| Bangalore | 5,450 | 3 |
| Chennai | 5,275 | 3 |
| Hyderabad | 5,713 | 5 |
| Kolkata | 4,208 | 1 |
| MMR | 9,474 | No change |
| NCR | 4,327 | 1 |
| Pune | 5,76 | 3 |
| National Average | 6,234 | 3 |
Source: Real Insight: Q1 2021
Price Growth in Q4 2020-City-Wise
| City | Average price as on December 31, 2020 (in Rs per sq ft) | % Annual Growth |
|---|---|---|
| Ahmedabad | 3,234 | 7 |
| Bangalore | 5,450 | 2 |
| Chennai | 5,275 | 2 |
| Hyderabad | 5,713 | 5 |
| Kolkata | 4,208 | 2 |
| MMR | 9,474 | No change |
| NCR | 4,327 | No change |
| Pune | 5,76 | 4 |
| National Average | 6,042 | No change |
Source: Real Insight: Residential Annual Roundup 2020
Nonetheless, the data of Real Insight: Q1 2021 and Real Insight: Residential Annual Roundup 2020, as shown above, indicates no downward movement in the prices. It goes without saying that it is an important achievement in this scenario.
India’s Coronavirus-induced recession will be among the sharpest in the world. Still, it has been forecasted that in FY22 (April 2021 to March 2022), the GDP will rise by 11%, after decreasing by 9.4 percent in FY21 (April 2020 to March 2021). However, a decline in the pace of wealth creation will diminish potential supply-side growth— investment has lately declined considerably. As a result, it is only anticipated to witness a modest recovery.
Evaluating Coronavirus Impact on Property Prices
There have been contradictory views on whether the price will rise or fall. According to the reports, Mr. Piyush Goyal, Union Minister of Commerce and Industry, opined that developers should focus on selling more residential projects and shouldn’t stick to the high prices. (Report of June 3, 2020)
This is because, even with the slow demand, India’s residential real estate market will assist in slow and steady price growth.
Some people believe that individuals anticipating a drop in home prices in the medium to long term would be disillusioned, as property values are more likely to rise in the post-Coronavirus phase due to various variables. But, at the same time, some believe that the rates can fall up to 10% across different places and cities.
Reasons Why There Are Minimal Chances of a Drop in Property Prices
For the past eight years, the industry has been through a lot of changes. From the applicability of RERA (Real Estate Regulatory Authority) to the recent covid-crisis. On the bright side, the market is growing at a slow pace as developers are being patient and handling the situations in the best possible way. Nonetheless, other factors that are contributing to it are:
The Cost of Building Construction Has Increased
Project delays are expected due to the shortage of building construction supplies that India buys from China due to the outbreak and escalating tensions between the two nations. In addition, the issue would have a more significant impact on premium-luxury home developments that rely significantly on the supply of fixtures and furnishings from China.
The time gap will not only cause housing projects to be delayed, but it will also raise the entire cost of project construction since builders will have to rely on alternative sources to satisfy their construction needs.
A hope of the “Make in India” Project
In the medium to long term, this challenging circumstance may help the government’s “Make in India” project, but developers will experience short-term hardship. In a situation like this, lowering prices is rarely the answer. On the other hand, the government may take steps to make it more profitable for homebuyers to invest in real estate. It is also anticipated to boost real estate, the country’s second-largest employer, by removing the tax on unsold inventory.
Reduced Repo Rate
The RBI has lowered the repo rate to 4%, lowering borrowing costs for property purchasers. As a result, current home loan interest rates are as low as 6.95 percent. Once the impact of COVID-19 on the employment market is apparent, this will operate as a motivator for investors to purchase property at a lower cost.
If you have more questions and doubts regarding the rise or fall of property prices, SBP Group can help you gain knowledge. You can always connect with SBP with an easy call-to-action option and seek advantage of it with the right property investment decision.
