Coronavirus has literally stopped the wheels of the economy and there is a complete halt in terms of business across industries. Everything under the non-essential category has shut shop and even the essential commodities are strained due to the restrictions on movements of vehicular traffic.
The residential real estate was a sector that was slowly hopping back to normalcy at the end of 2019 and moving into a positive phase. The COVID-19 has knocked back this progress and has pushed residential real estate into a state of weakness. The economic slowdown has put everyone including banks and financial institutions in a liquidity crunch and we cannot expect large purchases at a time like this. Banks have been asked to place a moratorium on loans of individuals and companies, thus making it harder for them to process further loans.
The affordability factors for many individuals will now come into play as many do not see the economy picking up pace at least for another 6 months. This essentially means purchasing a residential home will be considered a non-essential spend and will be delayed by many as individuals are unsure about their own income sources and job security in the current scenario.
The general outlook is that several residential projects across the country may grind to a halt and many new projects which are yet to begin construction may look at delaying their start dates. In the short term this will help control the outflows due to construction since the sales may not catch up to the construction anytime soon. Diversified builders with strong balance sheets may tide over the crisis and maintain their liquidity as they are better positioned to manage risks. But for builders who are mid-way through a project it will be an uphill task as they would need to live up to their commitment as a majority of the project would already be sold. The current RERA guidelines do offer an extension of 1 year for delivery of the project in such adverse situations but it may not be enough.
The disruption in collections will not just be for self-funded projects but also those associated with banking loans as banks are also stressed by offering moratoriums on existing loans. In the long term, this will have a deeper effect on the pricing and demand cycles for residential real estate and the full impact of the coronavirus crisis will only be felt at that point.
We can only speculate at the moment as we are yet to see the full impact of the coronavirus on the economy as we do not have a clear picture as to when this crisis is set to end. In the short term, a few builders might be able to handle their cash flows and tide over the crisis but if buyers do not come forward in the long run, it may result in several developers slowing down their construction activity in the residential sector.
