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  • Writer's pictureGandhi & Associates

Indian Real Estate Sector is expected to take a hit due to COVID-19

Indian Real Estate Sector, which was already struggling to re-emerge from the past turbulence of structural changes, policy reforms, and the liquidity crisis, is now set to witness another major fallout. Country-wide lockdown until mid-May has halted all activities. As evident, project sites are shut, site visits have stopped, and construction activity has come to a grinding halt, eventually impacting housing sales. Also, developers have deferred their new project launches for an unknown period. Besides the residential segment, commercial real estate is also not immune to the COVID-19 fallout. Corporate occupiers are seen delaying their leasing decisions and several MNCs and businesses are testing new waters of the work-from-home option. If proved successful, it could impact 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.

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.

Commercial Office Sector

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.

G&A research examines the situation in the light of previous impacts of economic slowdown and the global economic crisis. Net absorptions in 2020 to drop by 17% to 34% from the Pre-COVID-19 estimates.

The U.S. headquartered companies lease typically lease between 40%-50% of the annual net offtake of office space in India. Given the high chance of the USA economy suffering due to COVID-19 impact, its negative effect will be felt in India with a drop-in office space leasing. European Union (EU) headquartered companies do not influence India’s annual office space offtake as much as their contribution typically hovers around 10%-12%, but much of that is going to evaporate given the very high adverse impact of COVID-19 in Western and Southern Europe and in the UK.

Given the sluggish business environment and that is likely to be prevalent post the COVID-19 outbreak period, it will put rentals under tremendous pressure. While we expect that the vacancies may not rise significantly owing to the supply-demand equilibrium, the occupiers would like to re-negotiate the cost and other terms.

Retail Sector

COVID-19 has already hit the country and pressures are mounting on the Indian retail market with all cities under lockdown mode, at least until mid-May 2020 (as per current advisory). While India is in the early stages of COVID-19, shutting down of retail malls and high-streets has raised serious questions on the growth of this key asset class within the Indian real estate sector.

Beyond by a strong economy, rising household income, socio-economic factors, and change in spending patterns, consumption expenditure has been on a rise in India. As per World Bank statistics, final consumption expenditure in India increased from USD 1.10 Tn in 2010 to USD 1.92 Tn in 2018, a CAGR of 7%.

This time around, the situation seems to be different. Retailing as a business is seasonal and the current COVID-19 crisis indicates that during this year’s vacation season, Indians will be either locked down in homes or prohibited to congregate, thus there will be muted buying and muted spend on eating out, recreation and entertainment. As a result, in our opinion, consumer spending is likely to dip in the current year. Not only lockdowns and social distancing but also the overall economic gloom and employment uncertainty are likely to bear an impact on consumer spending.

Residential Sector

COVID-19 has severely hit residential real estate business and the sector has come to a standstill. With a screeching halt to site visits, discussions, documentation, and closures, the early indicators depict that we are likely to face a tough time for the next few quarters and the sector’s recovery has been pushed further away by at least a couple of years.

More than 15.62 Lakh units launched between 2013 till 2019 across the top 7 cities of India are in various stages of construction. Of this, MMR and NCR together comprise of 57% or about 8.9 Lakh units. With India being locked down until mid-May 2020 there will be massive disruptions in the construction material supply even after the lockdown ends, leading to disturbances and delays in construction activities.

In our opinion, construction delays might run up to several months for well-funded projects, while for others, the delays may even be to the tune of a couple of years. Being declared a national disaster, even RERA will be ineffective in getting homebuyers to recover any penalties. Thus, they will have to brace for construction delays.

Confederation of Real Estate Developers Association of India (CREDAI)

Keeping in mind the genuine crisis that the industry faces a statement was released by the Confederation of Real Estate Developers Association of India (CREDAI) wherein the following policy relief was immediately sought from the Ministry of Housing and Urban Affairs:

  • Inclusion of COVID-19 as a force majeure condition under Section 6 of the RERA.

  • Extension of registration period by at least one (1) year.

  • The requirement of additional funds on the same terms as existing loans without additional collateral from financial institutions to meet the increased costs.

  • Loans by real estate developers should not be classified as NPA in case of default on interest or principal repayment.

  • Interest and principal repayments falling due over the next three months in case of real estate projects be put off and recovered over the next nine months.

Government Measures to help the Real Estate Sector

The Maharashtra Real Estate Regulatory Authority by its Order No.: 13/2020 dated April 02, 2020, has revised Project Registration Validity and Extended Timeline for Statutory Compliances, in view of COVID-19:

  • For all registered projects where completion date, revised completion date, or extended completion date expires on or after 15th March 2020, the period of validity for registration of such projects has been extended by three months and project registration certificates with revised timelines for such projects would be issued subsequently.

  • Further, the time limits of all statutory compliances in accordance with RERA due in March, April and May have been extended to 30th June 2020.


While the residential, retail and commercial real estate sectors were still overcoming certain major policy decisions and legislations, the onset and spread of COVID-19 is set to heavily impact and adversely affect real estate developers in its wake. The Real Estate Sector is the second-largest employer in the country and has a direct effect on around 250 allied industries. Hence, it is of utmost urgency that the Government relaxes certain regulations to help the builders fulfill their commitments.

Please feel free to reach out to any member of the G&A Team in case you require any clarifications on the above.

Gandhi & Associates

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