Impact of Corona Virus on Hyderabad Real Estate Market

Halcyon Homes, Villas in Tellapur

If low interest rates (home loan interest rates are at 8% now) and high tax exemption (rebate against home loan interest payment is as high as Rs 3.50 lakh per annum) were going to make a change in the consumer behavior, the Coronavirus outbreak is likely to halt that shift, at least in the near to medium term.

As it is, site-visits by prospective property seekers are becoming out of question for the time being, postponing purchase decisions. “With the Coronavirus pandemic impacting all sectors of the economy, troubles have compounded for India’s realty sector which has been dealing with a ‘challenging scenario’ since the economic and policy reforms were introduced. The slowdown since February-end is apparent; and while site visits are almost non-existent, the decision-making process is hugely delayed.

The fact that businesses would scale down their workforce would also force many prospective buyers to wait for clarity on their job security before making a final decision on property purchase.

Even though the RBI has announced a 75-basis-point repo rate cut to bring it down to 4.4%, any positive effect of the move on buyer sentiment would be seen only in the medium to long term. The step, however, would come as a major support for existing buyers, who might struggle to pay EMIs in the short-term because of the lockdown and in the medium terms in the event of job loss.

For potential home buyers, who have job security or cash flows, it will be an excellent buying opportunity, he said. "Real estate is an immensely important asset class, and the value of global real estate was more than the value of all the stocks and bonds combined," he said.

Kishore Reddy, MD, Halcyon Homes, Villas in Tellapur, Hyderabad said Indian real estate market was already going through prolonged pain for various reasons such as economic stress in certain segments, high leverage, tight liquidity and rising non-performing assets (NPAs) in construction finance. "The irony is that while the government announced incentives for affordable housing by various means, they coincided with the world’s deepest crisis," Kishore said.

The global economic slowdown coupled with coronavirus pandemic is likely to negatively impact residential real estate demand in the country this year.

According to the rating agency India Ratings, residential real estate demand is expected to decline in financial year 2019-20 (FY20) after showing a slight improvement over FY2017-2019. He warned developers against high leverage, and said it is going to work as a double-edged sword. "In good times, it amplifies your profits. In bad times, it destroys you. Be careful of the perils of leverage,” he said.

Indira Prakash, Project Manager, Halcyon Homes advised developers to use the moratorium as the last resort, as it would just mean pushing the can down the road. He advised them to resort to equity for fund raising even though it would mean dilution of valuation and ownership. “Enhance the equity cushion. You need a higher cushion of equity,” he said. The industry veteran also asked the developers to focus on completing existing projects, rather than launching new ones. “Take home less money, keep the money in the company. Cut your home-running expenses. Be a little more stingy in your expenses,” he said.