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Real estate sentiments hit historic low in March quarter: Knight Frank report
Photo Credit: Reuters

With the coronavirus crisis bringing business activities to a grinding halt across sectors, the current sentiment of the real estate industry has touched an all-time low in the March quarter, says a new survey.

The survey - 24th Real Estate Sentiment Index Q1 2020 - was conducted by real estate consultant Knight Frank, industry body FICCI and real estate industry body NAREDCO.

According to the survey, a score of over 50 signifies ‘optimism’ in sentiments, a score of 50 means the sentiment is ‘same’ or ‘neutral’, while a score of below 50 shows ‘pessimism’.

The ‘future sentiment score’ outlining the industries’ market expectations has also dipped well into the pessimistic zone at a score of 36 in Q1 2020 against the score of 59 in Q4 2019.

The real estate sector that had just about started showing some signs of revival during the last quarter of 2019 has suffered a severe setback due to the COVID-19 crisis, the survey shows.

Shishir Baijal, chairman and managing director at Knight Frank India, said the pandemic has created an unprecedented condition that is impacting global markets and societies. There is already a severe shortage of liquidity as economies have frozen due to lockdown. 

The government and the Reserve Bank of India have provided some stimulus measures, however, further support may be required to help the real estate sector and for the economy to stay afloat during the crisis, he said.

Managing liquidity and sustaining through the length of this pandemic will be critical for economic survival in the post-pandemic era.

He further said that the real estate segment specifically will have a long journey to make. This crisis has retracted the end-user confidence to its lowest levels ever, which will push any kind of real estate purchase decisions to the distant future.

“The already ailing real estate sector has been crippled with this pandemic, making it imperative for government support to bring it back on track,” Baijal added.

As per the report, the sentiment score had revived in the Q4 2019 after being in the pessimistic zone (below 50 mark) for two consecutive quarters. The mood of the stakeholders as regards to the overall economy and the real estate sector had been in the pessimistic zone in the second and third quarter of 2019 due to credit squeeze and overall economic slowdown.

With the slew of measures announced by the government to revive the sector, the last quarter of 2019 infused confidence in the real estate market. The creation of a stressed asset fund (AIF) of Rs 25,000 crore to provide last mile funding to stalled affordable housing projects was a welcome step in this direction. However, the COVID-19 outbreak has marred the stakeholder’s sentiments, it said.

The survey also said that the developers’ sentiments as regards the sector had seen a boisterous revival (59) in the preceding quarter of Q4 2019 on the back of government interventions. However, due to the current pandemic, the developers’ sentiments (35) have dropped to new lows for the coming six months. Sentiments of the financial institutions also moved to a pessimistic zone, with a score of 36.

More than 70% of the stakeholders believe that the flow of funds to the real estate sector might get worse or remain at the current levels in the coming six months, it said.

For the residential sector, the survey said that more than 60% of the stakeholders have opined that the current COVID-19 situation will adversely impact residential new launches (65%), sales (65%) and prices (64%) in the next six months

The residential sector which already had concerns of weak demand will find it difficult to launch new projects and complete the ongoing ones due to construction halts and labour shortage.

About commercial real estate, 42% of the respondents believe that the next six months will be one of the worst phases in terms of new supply additions across the major office markets in the country. 53% of the stakeholders opined that leasing activity will remain well below par in the next six months.

It also said that stakeholders’ outlook about the future rental appreciation also dipped in Q1 2020 with 50% of the stakeholders expecting rents to either remain stagnant or slide under the current uncertain economic scenario.

“There is an extreme sense of uncertainty on the COVID-19 pandemic both in terms of its intensity and timeline of damage on human life and everything associated with it, including business,” Sanjay Dutt, MD and CEO at Tata Realty & Infrastructure Ltd and chairman at FICCI Real Estate Committee, said.

He said it is time to strengthen revival efforts with a strong fiscal boost that shall serve as a stimulus to ensure that the economy recovers sooner than later.

“As gradual recovery begins with improvement on this pandemic and things settle over a 12-24month time horizon, we will see a long drawn extended U-shaped recovery for the residential segment but a faster V-shaped recovery for the office segment in the country,” Dutt added.

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