Lockdown: Housing demand expected to remain muted, say rating agencies

Mumbai, Apr 14 () With the ongoing lockdown now extended till May 3 and uncertainty over economic recovery, demand for housing is expected to be muted as buyers may choose to postpone their decisions, analysts said.

Due to the nationwide lockdown, construction activity has come to halt as supply chain for obtaining construction material has been disrupted and labour workforce have migrated to home states in search of alternative sources of livelihoods.

"In 2020, post lockdown, the residential housing segment is expected to see muted demand as buyers may choose to postpone their purchases as they shall become more risk averse in the medium term. As a result, sales and collection is expected to get impacted adversely," ratings agency Care said in a report.

The agency noted that due to lower collections anticipated, especially in Q1 FY2021, the construction progress for projects with high dependence on customer advances may get hampered in the short to medium term.

Echoing the views, ratings agency Icra said committed collections receivable from already booked sales are also likely to get impacted, given that mile-stone based payments may get deferred and some buyers may delay payments on account of economic uncertainties.

"Projects catering to the business, NRI and investment communities, where purchases tend to be largely self-funded, may witness a more significant disruption in collections.

"Less disruption would be expected in the home loan funded segment, although in some cases, pay cuts may lead to re-evaluation of buyer credit profile by HFCs, thus impacting incremental disbursements," Icra's Mahi Agarwal said.

On the supply side, Agarwal said new launches are likely to get deferred, not only due to operating issues, but also due to increasing economic uncertainties and likely moderation in developer inflows.

"For ongoing projects, execution has been getting hampered due to reduced labour force presence and raw material supply chain disruptions attributable to lock-downs on non-essential services and contagion fears," she added.

Thus, overall project development timelines and costs are likely to increase, though some cost savings on account of the prevailing decline in commodity prices are likely, Agarwal said.

"Notably though, RERA guidelines provide for a one-year extension in project execution timelines, in case of events beyond promoter control. Thus, regulatory risks are reduced in the case of a short-term disruption," she added.

Care Ratings' Amod Khanokar opined that in the wake of COVID-19 situation, price points are expected to soften for developers desperate to sell their inventory.

"However, this would again depend upon location and type or segment of individual projects and the builder's financial flexibility which will be demonstrated in its ability to hold on to the inventory in such times. Luxury projects which have shown lower sales growth are likely to be impacted more," he said.

HDFC Chairman Deepak Parekh on Tuesday said property prices may witness up to 20 per cent correction in the wake of the coronavirus pandemic.

Care Ratings further said that disbursement of new loans or refinancing risks have increased as housing finance companies, NBFCs and banks become more selective and tighten their disbursements criteria to developers.

According to Icra, the retail real estate segment is directly impacted due to ongoing nationwide lockdown and resultant closure of malls.

"With rental expenses forming a sizeable share of 12-16 per cent of revenues for retailers, all tenants are likely to negotiate for waiver or rebate of the rentals for the closure period. Even after resumption of operations, the footfalls are expected to be muted, therefore, the financial position of the tenants will continue to be stressed.

"Resultantly, the rental income of the mall operators, which also comprises a portion of the revenue share, is expected to be significantly impacted," Icra's Anand Kulkarni said.

On the impact on commercial real estate, Care Ratings said office space leasing which was one of the booming sectors having attracted majority of funds from the private equity players in the past, is now expected to experience slowdown.

"This is largely in the co working space owing to surge in 'work from home' option by various industry players as they would look to optimise their cost and potential change in user habits as majority of demand is driven by the IT/ITES industry. As a result, rentals are expected to soften or stabilise in the co-working space owing to lower demand," the agency said. PSK ABMABM