The Impact of the Second Wave of COVID-19 on Indian Real Estate

It is safe to say that 2020 has changed the way the economy functions. A global pandemic has changed customer behaviour, creating lasting impact on our investment and purchase behaviours.With India being in the middle of a massive second wave of COVID-19, the  economy is once again scrambling to keep up with the restricted travel permissions and potential lockdown.  Real estate investments have shown an interesting trend in the midst of the pandemic.

As per a recent report by Knight Frank, the top eight cities of India have shown stable property prices in the first quarter of 2021. This can be attributed to the fall in cases from November 2020- February 2021.

It is interesting to note that the cities Chennai and Hyderabad had recorded an appreciation of 8% and 5% in property prices. This phenomenon in Chennai occured due to the fact that it is a relatively end user market. That means, the city has experienced a hike in demand from buyers in up and coming areas such as Mogappair, Porur, Manapakkam and others.Well developed areas along the OMR belt have also seen a cost appreciation to a certain extent.

The buyers have an increasing preference for the above areas due to its high connectivity with all parts of the city, excellent infrastructure, promising industrial complexes and developments and high rental yields. These factors ensure a massive re-sale value in these areas, spurring buyers to purchase plots and houses there.  

Impact of COVID on property prices

The main reason why property prices have hiked in 2020 is due to the rising cost of labour and raw materials. During the lockdown, the manufacturing industry completely stalled for a couple of months, leading to a demand- supply gap of raw materials. When the economy started to revive in the later half of 2020, the demand for materials outweighed the supply, leading to a sharp rise in pricing. This has percolated down to the price of the end product as well.

The year 2021 started off in a positive way for Indian real estate sector. The low interest prices and the opening of economies boosted property value and prices. But with the advent of the second wave of COVID-19, the Indian economy is scrambling again, with reduced spending and shifting purchase priorities.

But the previous quarter Jan-March 2021 saw a promising demand in the ready-to-move-in market, which is expected to remain constant in the upcoming quarters, provided prices do not fluctuate massively.

Experts Predicate Property Value 2021.

In the advent of the rise in cost of raw materials in the past three years, some experts predict a rise in property prices in 2021. Dhiraj Jain, the director of Mahagun Group postulated that since the cost of raw materials has gone up to almost 200 percent in the last three years, a massive drop in property value is not feasible for anyone. So, even in 2021, with the impact of COVID-19, he theorizes that prices would increase in the range of 5-8% across micro-markets in India.  

 Harvinder Singh Sikka, Managing Director, Sikka Group, also has a similar sentiment towards property value. According to him, demand and cost of raw materials is one of the biggest factors that determine prices. Both of these components have shown an upward movement in the recent past. In order to tackle the rising cost of development, projects are introduced at a higher cost to the market. Land developers cannot afford to reduce prices for the time being.  People have started to understand the long term value of real estate investments, and the growing youth population has started to take an active invest in the market. He theorizes that 2021 will see an increase in demand and price of property, but the extent of the rise will vary according to different segments.

The cost of construction has faced an upsurge of around 8 percent in the last two years, due to the increasing cost of procurement, restriction of travel, cost of labour and the limited operational capacity in manufacturing sector due to rising health concerns.

The real estate sector has been facing the brunt of the pandemic’s restrictions on labour, manufacturing and employment opportunities. The government has offered good support to the real estate market during these tough times through the implementation of stress funds and stimulus packages. But the fact remains that the second wave is casting trouble for the sector that is already in need of support.  Amid all these issues, reduction in property prices does not seem to be a possibility.

The smart move for investors in 2021 would be to take advantage of the competitive pricing and invest in real estate. Whether the prices will appreciate or depreciate in the upcoming quarters is still up for debate, but the fact remains that real estate is still an important sector to focus on to ensure long-term wealth and stability. Currently, housing finance is available at comparatively affordable prices, which gives investors the support they need to invest in profitable real estate.

The real estate market is full of competitive land developers and businesses who can help you navigate your choices in an effective manner. Check out Wisdom Properties if you are interested in purchasing residential plots and housing in the fast developing areas of Chennai.