Ankit Sharma | ETRealty | Updated: March 25, 2020, 22:25 IST | New Delhi
Real estate markets of Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune have come to a virtual standstill. With residential real estate typically being a “touch and feel” high ticket purchase, prolonged spell of social distancing owing to COVID-19 may lead to cash flow management issues in ongoing projects where a fall in collections may lead to a drop off in construction activity, said ICICI Securities in a recent report.
Developers who had a slew of residential launches lined up from Q1 FY21 may get deferred by 2-3 quarters. “New launches planned in April-May 2020 will be pushed back till at least September 2020 to coincide with the festive season,” said Adhidev Chattopadhyay, research analyst, ICICI Securities. The prospect of falling sales in ongoing projects and deferment of upcoming launches threatens to become a major dampner in coming months, said the report. “With sales in ongoing projects likely to see a drop in collections and construction activity in case the COVID-19 issue lasts longer, developers with strong balance sheets will be best placed to weather the storm,” said Chattopadhyay.
In the last four years the Indian residential market has witnessed many major events including demonetisation, RERA and GST implementation and the NBFC funding crisis. Since early March 2020, the COVID-19 scare has led to buyer footfalls falling off dramatically in the largest markets of MMR and NCR and to a lesser extent across South India.
Real estate projects rely on a number of imported items such as glass, marble, MEP (mechanical, electrical and plumbing) works and other finishes. With global supply chains seeing disruption owing to COVID-19, construction is likely to get delayed. At the same time, falling sales in ongoing projects may result in lower collections and force developers to go slow on construction activity. This may in turn have a cascading effect wherein highly leveraged developers are unable to service loans.
ICICI Securities feel any moratorium on principal/interest payments for developer and housing loans may bring relief for the beleaguered residential market.