Buying Real Estate amidst COVID-19 - Make an Informed Decision

 Purchasing real estate in India has ALWAYS been an important and critical moment in one’s life. The sense of ownership and having a tangible asset has been prevalent in our society & culture for a considerable time; perhaps best summarised by the adage: “Roti, Kapda aur Makaan” (Food, Clothing and Shelter).

Over the past 2 decades (2000-2020), growing economic activity and better standards of living have given a significant rise in home ownership in the country. Real Estate has also witnessed a significant rise as a favourable investment category; several FDI funds, HNI & retail investors have added real estate holdings in their portfolio.

The additional investment in the category has led to a substantial increase in property prices across the major metro cities such as Mumbai, Delhi NCR, Bangalore, Pune etc. as well as the Tier II cities across the country.

However, since late 2016, the real estate sector has witnessed a steady stagnation in sales and a slowdown has gripped the sector over the past 3 years. As property prices were steadily increasing until then, several potential buyers opted to rent instead, purchase older properties without modern amenities or simply chose to defer their plans altogether.

A recent report highlighted the impact of this slowdown aptly – the value of unsold inventory across the nation stands at a staggering ₹370,000 Crore as of March 2020!  With the onset of COVID 19 in early 2020, the cash flow cycle in the industry has been affected drastically.

Let us not forget that the industry was already facing challenges from adverse events such as –

• IL&FS Bankruptcy
• PMC Bank Scam
• DHFL Scam
• Yes Bank Moratorium

The above lenders had significant exposure to the real estate industry, and the effects were compounded from 2018 onwards. As the cash flow from Banks and NBFCs will now be drying up, developers will be looking to liquidate their inventory in order to sustain their cash flows and ensure they come out of this pandemic in one piece.

This brings us to a vital question – Should you, the real estate buyer / end user, purchase property in such a scenario? Considering the uncertainty surrounding one in the current scenario, health and wellbeing will take a priority over all else.

However, once the dust of the pandemic settles and the lockdown is lifted, there may be a chance for several buyers, harbouring a dream of ownership, to potentially benefit from the aftermath.

And whilst many would be searching for a great deal that would let them realise that dream, they must do so after ensuring their own position before making the commitment. We cover some fundamental points that should be considered here.

• Job Security / Business Prosperity:

• Perhaps the most important question that umpteen individuals would be asking themselves right now - Is our immediate future secure? Will the job remain once the lockdown is lifted?

Considering that economic activity across the globe has reached a grinding halt, and a sweeping implementation of working from home, several employers may be considering layoffs for non-essential roles or restricting expansion plans or hiring. Business owners will also clamp down on expenses where possible to ensure that the cash flow is maintained.

• Personal Finances:

• An individual with an existing financial obligation or fixed expense should focus on covering those during this time – Rent? Outstanding loans / EMIs? Household expenses? Family related expenses?

Families that rely on a single person or 2 people for running the household will scrutinise every new expense to avoid stretching their budget thin. Aspirational purchases such as cars / new homes or miscellaneous expenses as dining out / entertainment tend to be side-tracked. The auto industry appears to be facing such an impact already. Car dealers have received requests for cancellations or refunds for booking amounts as soon as they resumed operations (Source – ET Auto, 7/5/2020).

• Health & Well Being:

• With COVID 19 highlighting several shortcomings of the current healthcare infrastructure in the country, the masses will certainly be thinking about their daily lifestyle and habits – Are we healthy / fit? Is our family secure? How do we keep them secure?

Family planning and personal health will certainly play on the mind. We may see a surge in the insurance sector as many who earlier avoided taking insurance policies coming into the market as it will aid them financially in times of duress. Additionally, one may even wish to buy a home as a form of permanent shelter for themselves or their family.

There are several other aspects which may be considered; however, the above points are some essential questions that should be asked by anyone who is looking at making a real estate purchase. After all, buying a home is a great occasion. The decision to become a homeowner must be done with careful consideration of one’s personal requirements and needs.