Impact on real estate likely to be a dampener: KPMG

Pune: A recent report on real estate sector in India’ COVID-19: React, adapt and recover – The new reality: A perspective on the Indian real estate sector’ by KPMG signifies that short term impact in coming six to 12 months is likely to be a dampener for the real estate sector’s recovery. In comparison, the long term outlook for real estate sector in next 18 to 24 months seems positive and might see the structural transformation.

POTENTIAL IMPACT OF COVID-19 ON REAL ESTATE SECTOR
The report mentions the potential impact of COVID-19 on various assets such as the pre-COVID challenges of subdued demand and liquidity to continue in the short and medium-term in the residential sector. It further stated that there would be inventory contraction as the credit crunch may impact on creating residential sales contraction; bringing down sales from four lakh units in 2019-20 to 2.8 lakh-3 lakh units in 2020-21 across in top seven cities.

The other significant impact of COVID-19 is the reverse migration of low-income workforce from key activity hubs during lockdown created a labour shortage. Labour shortfall and slow pace of site work progress to heighten project delays for under-construction projects and new launches. Health safety concerns and social distancing limitations have adversely affected shared accommodation model-based businesses such as student housing and co-living real estate.

The report further states that unclear timelines for easing of lockdown and social distancing restrictions have impaired conventional ‘in-person’ sales and marketing interactions. Therefore, technology-driven modes expected to bridge the gap via online sales platforms, Augmented and Virtual Reality (AR/VR), drone-based surveys, 3D visualisation etc., compensating the experience touchpoint for buyers and developers from safe confines and without the need to visit the project site.

LONG TERM IMPACTS ON REAL ESTATE SECTOR
However, some other Long-term Impacts next 18 to 24 months mentioned in the report are likely positive for the sector. It is mentioned that with social distancing norms and workplace health safety regulations affecting contraction, the real estate industry’s structural transformations will bring forth latent opportunities within untapped real estate segments such as data centres, integrated supply chains, warehousing, self-sustaining industrial parks, design efficiency processes social distancing and preventive hygiene cognizant commercial and hospitality spaces.

Another long term impact mentioned in the report is the changing trends in interior layout and designs – Optimising indoor space utilisation through fluid designing principles in the structural framework and interior fit-outs to catch on; allowing the easy transformation of space for varied needs/function such as work, recreation and physical activities.

Chintan Patel, Partner and Leader – Building, Construction and Real Estate, KPMG in India, said, “With this recent pandemic outbreak, the real estate sector is likely to be handicapped in the short term, impacting over 250 related industries and economic sectors. 

"In addition to capitalising on the intervention proposed by the Government, the industry should resume operations post lockdown by leveraging technology innovations for enabling employee and consumer health safety standards, design flexibility (Work from Home), cost optimisation and consumer engagement (such as AI, VR, BIM, etc.), focused localisation of supply chains, reorganisation of business models, which is likely to revive activity, accelerating Indian real estate’s turnaround over the coming 12–18 months. Ongoing financial woes, as well as an unprecedented global crisis of the pandemic, have unsettled the investment climate and almost no industry is insulated from its impact.”

RECOMMENDATION FOR THE GOVERNMENT IN THE REPORT
- Financial support in the form of providing additional funding, loosening lending norms, extending repayment schedules, etc.
- Regulatory support in the form of reducing the number of approvals, reducing the timelines for approvals, reducing fees and premiums, etc.
- Fiscal support in the form of tax incentives and reduction in GST rates, etc.