Impact of Corona Virus on the real estate Market

Impact of Coronavirus on the real estate Market

Corona Virus breakout emerged in Wuhan city of China. China has allocated more than $10 billion to contain the coronavirus. The growth rates due to this virus for numerous countries have been cut. S&P Global Ratings has cut China’s 2020 growth forecast to 5 per cent from 5.7 per cent. Nine out of the top 10 countries in Asia are vulnerable to the virus and they include India. Hong Kong, Singapore, Taiwan, Japan, South Korea, Thailand, Malaysia and the Philippines.  

India faces a series of challenges due to the coronavirus outbreak. Pharma companies, mobile handset, consumer electronics and automobile sectors in India may witness lower production due to clogged supply from China.

The corona virus outbreak made RBI Governor Shaktikanta Das take note and suggest the need for a contingency plan to deal with the unfolding situation. According to Jimeet Modi of SAMCO Securities, “The overhang of Coronavirus will largely drive the mood of stocks in the short term. Investors are advised to wait and let the market settle down before allocating any meaningful savings to direct equities.”  

It implies that if the global environment remains weak, commodity prices would fall, as is the case with the 20 per cent drop in crude oil prices, which should benefit India. However, India is not immune to a global slowdown. UBS said reports of the virus contagion have contributed to investors’ concerns during its marketing trip.

The report said, “Potential similarities between the Wuhan virus Coronavirus and SARS in 2003 have led many investors to question the extent of the impact on India. At this early stage, we only see a negligible economic impact, but India is not immune. India’s tourism contributed only 1 per cent of GDP in FY19. But China is India’s third-largest goods export partner ($17 billion; 5 per cent share in India’s exports). Any likely slowdown in growth in affected Chinese cities could result in a further drag on raw material demand from India and thus could drag exports further.”

There is also a Birgitta side to all this havoc that is headed our way... Economists are of the opinion that the disruption caused by the virus in China could pave way for more foreign investments in emerging economies like India, Bangladesh, and Vietnam as the world looks to reduce dependency on China, the largest manufacturing hub in the world.

Experts feel that India has a good chance of becoming an attractive manufacturing hub given the present situation, provided the government changes some of its trade policies to bring down commodity prices. An example of Vietnam, which has gained a huge growth boost due to higher density of electronics manufacturing, is before everyone.

H Nemkumar, Head – Institutional Equities, IIFL, said that the ill-fated coronavirus outbreak in China has offered India an opening to revive the ‘Make in India’ programme.

According to the Chief Economic Advisor of India, Krishnamurthy Subramanian, the coronavirus outbreak in China provides an opportunity for India to expand exports. India is one of China’s leading trade partners in Asia and has a huge trade deficit with that country.

“Coronavirus hit 789,240 lives with death tolls 37,820 globally.”

“Trump extended US social distancing until April 30.”

“Italy’s coronavirus deaths surpass 10,000.”

“India’s coronavirus lockdown leaves dozens of people stranded and hungry.”

In the past 3 months, such headlines have become the first thing we interact with. We have been separated from our friends and workplaces and caged at our own apartments across 199 countries and territories; hopelessly waiting for the day to walk on the streets or enter public spaces.

But what’s worse is that Coronavirus is not only instilling fear of the ‘End of the World’ in our minds, it is also bringing a major impact on different industries and crashing the global economy. A clarity of which you will get by the time you reach the end of this article.

India, where the economic growth is already set to slow down to a record 11-year-low, the 21-day lockdown would further worsen the situation in Asia’s third-largest economy. As is evident, research agencies are predicting a near-term halt in growth of real estate in India. PropTiger.com data shows housing sales in India’s nine major cities declined by 30% in the period between October-December 2019 as the festive season failed to revive consumer sentiment, which took a severe beating because of large-scale delays in housing projects and increasing cases of builder insolvency.

The Coronavirus spread has further delayed a recovery that might have seemed possible because of various government launched measures to revive demand though right now it doesn’t seem like prices will go down immediately. Niranjan Hiranandani, national president, NAREDCO, states that “Salvaging Indian realty, the second-largest employment generator is critical, not only from the GDP growth perspective but also for employment generation, since the sector has a multiplier effect on 250-plus allied industries.”

The centre in the recent past had announced higher tax breaks and lower interest rates on home loans to make purchases more lucrative, apart from setting up an Rs 25,000-crore stress fund for stuck projects.

If low interest rates (home loan interest rates are at 8% now) and high tax exemption (rebate against home loan interest payment is as high as Rs 3.50 lakh per annum) were going to make a change in the consumer behaviour, the Coronavirus outbreak is likely to halt that shift, at least in the near to medium term.

As it is, site-visits by prospective property seekers are becoming out of question for the time being, postponing purchase decisions. “With the Coronavirus pandemic impacting all sectors of the economy, troubles have compounded for India’s realty sector which has been dealing with a ‘challenging scenario’ since the economic and policy reforms were introduced. The slowdown since February-end is apparent; and while site visits are almost non-existent, the decision-making process is hugely delayed,” says Hiranandani.