Real challenges post COVID-19
Real Estate

Real challenges post COVID-19

The COVID-19 pandemic has spared no sector of the economy and real estate, a key employment generator, is no exception. With this in mind, CARE Ratings has recently published a report, Real Estate: Challenges Ahead amid the Coronavirus Scare, which seeks to examine the state of the sector following the pandemic.

As the report points out, real estate, which can be broadly categorised into residential housing and commercial sales and commercial leasing (office, mall and industrial space), has a multiplier effect on myriad industries. Characterising the year 2019 as a “mixed bag”, CARE Ratings shares that the industry attracted investments worth around $ 5 billion; around 66 per cent of these were in commercial real estate, which witnessed a healthy 27 per cent increase in volumes year in year. Residential housing demand, however, has been sluggish with lower absorption of late owing to structural reforms such as RERA, demonetisation and GST as well as economic slowdown, the NBFC crisis and low buyer sentiment.

The nationwide lockdown has only made matters worse—construction activity has come to a grinding halt with disrupted material supply chains, re-migration of labour and non-availability of transport. Return to normalcy will take time and be exacerbated by delay in approvals as well as buyers becoming risk-averse in the medium term.

In the residential segment, although price points may soften, this would depend on the type of project. In the short term, companies may experience weakened cash flows and financing and funding difficulties; here, developers with greater financial flexibility and liquidity would fare better. Commercial real estate is also expected to experience a slowdown, largely in the coworking space, owing to the increasing popularity of the ‘work from home’ option. Further, FDI in commercial real estate is expected to be on hold owing to limited new leasing activity and the economic struggles of countries like the US, Singapore, Hong Kong and China—typically the source of major investments.

In the malls segment, footfalls may take some time to revive causing an impact on cash flows in the short term. Again, companies with higher financial flexibility and better liquidity will fare better. In the medium term, CARE Ratings expects some correction for mall space leasing while lease rentals are expected to remain firm for office space leasing and commercial warehousing—while e-commerce expected to pick up steam once again after the lockdown.

Mitigating factors to provide relief to developers include the RBI’s three-month moratorium on term loan repayments and interest on working capital till May 31 2020, and MahaRERA’s three-month extension of the period of validity for registration of all projects where completion date, revised completion date or extended completion date expires on or after March 15, 2020. The report also informs that the Government is set to move an ordinance to suspend fresh insolvency action against companies for six months by lenders or creditors—this would protect developers from action from financial creditors, including home buyers.

That said, the outlook for the real-estate sector remains negative—any revival post lockdown will take time with slowdown in construction activity and weakened cash flows, impacting credit quality. The silver lining, though, could be the commercial real estate segment and warehousing leasing activity, which are predicted to recover faster than other real-estate asset classes.

To Read the complete CARE Ratings Report, Click here

The COVID-19 pandemic has spared no sector of the economy and real estate, a key employment generator, is no exception. With this in mind, CARE Ratings has recently published a report, Real Estate: Challenges Ahead amid the Coronavirus Scare, which seeks to examine the state of the sector following the pandemic. As the report points out, real estate, which can be broadly categorised into residential housing and commercial sales and commercial leasing (office, mall and industrial space), has a multiplier effect on myriad industries. Characterising the year 2019 as a “mixed bag”, CARE Ratings shares that the industry attracted investments worth around $ 5 billion; around 66 per cent of these were in commercial real estate, which witnessed a healthy 27 per cent increase in volumes year in year. Residential housing demand, however, has been sluggish with lower absorption of late owing to structural reforms such as RERA, demonetisation and GST as well as economic slowdown, the NBFC crisis and low buyer sentiment. The nationwide lockdown has only made matters worse—construction activity has come to a grinding halt with disrupted material supply chains, re-migration of labour and non-availability of transport. Return to normalcy will take time and be exacerbated by delay in approvals as well as buyers becoming risk-averse in the medium term. In the residential segment, although price points may soften, this would depend on the type of project. In the short term, companies may experience weakened cash flows and financing and funding difficulties; here, developers with greater financial flexibility and liquidity would fare better. Commercial real estate is also expected to experience a slowdown, largely in the coworking space, owing to the increasing popularity of the ‘work from home’ option. Further, FDI in commercial real estate is expected to be on hold owing to limited new leasing activity and the economic struggles of countries like the US, Singapore, Hong Kong and China—typically the source of major investments. In the malls segment, footfalls may take some time to revive causing an impact on cash flows in the short term. Again, companies with higher financial flexibility and better liquidity will fare better. In the medium term, CARE Ratings expects some correction for mall space leasing while lease rentals are expected to remain firm for office space leasing and commercial warehousing—while e-commerce expected to pick up steam once again after the lockdown. Mitigating factors to provide relief to developers include the RBI’s three-month moratorium on term loan repayments and interest on working capital till May 31 2020, and MahaRERA’s three-month extension of the period of validity for registration of all projects where completion date, revised completion date or extended completion date expires on or after March 15, 2020. The report also informs that the Government is set to move an ordinance to suspend fresh insolvency action against companies for six months by lenders or creditors—this would protect developers from action from financial creditors, including home buyers. That said, the outlook for the real-estate sector remains negative—any revival post lockdown will take time with slowdown in construction activity and weakened cash flows, impacting credit quality. The silver lining, though, could be the commercial real estate segment and warehousing leasing activity, which are predicted to recover faster than other real-estate asset classes. To Read the complete CARE Ratings Report, Click here

Next Story
Infrastructure Energy

India urges states to consider nuclear power plants, lists utilities

India’s federal power minister urged states distant from coal resources to explore establishing nuclear-based power plants, in addition to identifying power utilities that could attract investment to support the rising energy demand. This year, the Indian government proposed in its federal budget a partnership with private entities to develop small nuclear reactors, aiming to boost electricity generation from sources that do not emit carbon dioxide. In a government statement, the power minister, Manohar Lal, advised states to consider setting up nuclear power plants at locations where coal..

Next Story
Infrastructure Energy

NTPC Green Energy sets price range for $1.2 billion IPO

NTPC Green Energy announced a price range of Rs 102 to 108 per share for its upcoming Rs 100 billion initial public offering (IPO). The renewable energy company’s IPO will open for bids on November 19 and close on November 22, with large "anchor" investors scheduled to bid on November 18. This IPO, a unit of the state-owned NTPC, is set to be the third-largest stock offering in the country this year, following those of Hyundai Motor India and Swiggy. Recent technological advancements have opened up possibilities for small wind turbines to function effectively in urban settings. Ministry of N..

Next Story
Infrastructure Energy

India considers small wind turbines for urban energy access

India’s carbon emissions are projected to increase by 4.6 per cent in 2024, accounting for 8 per cent of global emissions, as reported by the Global Carbon Project in its 2024 Global Carbon Budget. The report shows that global fossil CO2 emissions have reached a record high of 37.4 billion tonnes this year, marking a 0.8% per cent rise from 2023. When combined with emissions from land-use changes, including deforestation, the total CO2 emissions are expected to hit 41.6 billion tonnes, up from 40.6 billion tonnes in 2023. India’s rising emissions reflect an increasing demand for energy, w..

Hi There!

"Now get regular updates from CW Magazine on WhatsApp!

Join the CW WhatsApp channel for the latest news, industry events, expert insights, and project updates from the construction and infrastructure industry.

Click the link below to join"

+91 81086 03000