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Vol. XXX No. 17, January 1-15, 2021

COVID’s impact on real estate

by Our Special Correspondent

Madras Musings reached out to P. Suresh, the Managing Director of Arun Excello, to understand how the city’s real estate industry has weathered the pandemic.

The first impact of the pandemic on the city’s real estate industry was when the lockdowns were enforced – construction came to a halt and a large chunk of the sector’s migrant labour force returned to their home states. “There were no sales at all,” recalls Suresh.

The situation has improved markedly over the year, however. “Things started looking up in September – we clocked around 30 per cent of our pre-covid sales. In October, we hit 90 per cent and we’re almost back to pre-covid levels in December,” informs Suresh, a growth he ascribes to a steady increase in first-time home buyers. “People who lived in rented accommodations went through a turbulent time when the pandemic hit – most homeowners wanted renters to vacate, for instance. So, quite a few have made owning a house their top priority,” he explains. The need to own homes is also an outcome of the work-from-home trend that surfaced last year. Professionals increasingly prefer to live in larger accommodations where they can set up a dedicated workspace free from the hustle and bustle of the household. “They’re willing to move to suburban areas for larger homes,” says Suresh. Ready-to-occupy apartments are moving quickly. “Bankers disburse the loan amount in a single instalment when there is no waiting period. This means that buyers don’t need to pay pre-EMIs, they can make the payment and take possession immediately,” says Suresh.
The industry is currently enjoying a good climate to buy new homes, too – interest rates are at their most attractive, with home loans available at 6.9 per cent. The government’s Pradhan Mantri Awas Yojana scheme is also turning out to be a boon for first-time home buyers, who receive a Rs. 2.67L cash subsidy under the plan.

The commercial segment is reportedly seeing better days as well. “Commercial establishments were forced to shut for a long period during covid, around 6 months or so. So, a lot of commercial spaces were vacated since businesses couldn’t pay the high rent,” explains Suresh. Things are getting better, however. “The requirement for commercial space is picking up,” he says.

However, challenges remain. For one thing, even as the appetite for new homes is healthy among first-time buyers, housing loan eligibility norms have become stricter. Averse to giving a loan, banks and financial institutions have tightened the process, strictly reviewing the customer’s income situation, credit score and loan repayment history. “It’s becoming harder to get a loan, even though interest rates are favourable,” points out Suresh. Additionally, while buyers have started to engage with the sector, investors remain shy. This isn’t a covid-specific fallout, however – Suresh explains that the real estate rates have not seen much appreciation over the past three years. “Investors are safe operators – they prefer investing where there is appreciation. With prices remaining stagnant over the last three years, they were lukewarm towards the segment to begin with. We saw some investment before the pandemic, and now, of course, there is hardly any.”

Construction costs have also gone up, a development that is fairly recent in the sector. “The industry is facing a steep increase in material rates – steel rates have gone through the roof, as have copper and aluminium, for instance,” says Suresh. This of course, drives up the cost for the end user, making it more complex for them to prove loan eligibility with an already reluctant financial sector. The silver lining, Suresh points out, is that there is no dearth of manpower at the moment. “All the migrant workers who had returned to their homes in Bengal, Orissa or Bihar, came back by mid-September. Labour costs were briefly expensive when we had to temporarily tap into local labour, but they have stabilized now,” he finishes.

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