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Challenges facing real estate sector in India

By DM Deshpande

As an asset class, real estate has no parallel, well, in India at least. There is this old saying that landlords grow richer in sleep. That is why it attracts investment on a scale that no other asset class does. However, the pandemic has put brakes on its growth and prospects. It has changed the way we work, learn and live. 

  Google has announced that its employees will work from home (WFH) till July 2021. TCS has forecast that by 2025 just about a quarter of its workforce shall turn up to office for work on an average. Infosys does not appear to be enthusiastic right now but the overall report in IT industry suggests that productivity has, in fact, gone up with WFH. The real estate industry, therefore, needs to adjust to the ‘new normal’.

  Unfortunately, nobody knows what will be the new normal? Pune and Bengaluru were showing early signs of recovery in terms of office space after lifting of stringent lockdown of three plus months. But that might not have continued due to haphazard and unplanned re-imposition of lock downs in several parts of India. The worst is not over with both positive cases and mortality rates going up pan India. Also worrying is the emergence of new hotspots in different parts of the country. 

  Though it is early days, yet there are tell tales of how the real estate sector might look in post COVID-19 situation. With more people likely to WFH, home will see a new paradigm shift. Employees may not even travel for meetings and conferences preferring video and other IT enabled methods from the comforts of their homes. India has a young population. In the last few years there was a distinct shift in mindset of this category, to rent rather than own homes.

  The pandemic might have altered that position in favour of owning an asset in difficult times. If both partners are working, it might actually spur demand for a larger home space than the present. Real estate, especially the home sector, is likely to pick up in tier two and three cities with a large number of young boys and girls returning to their homes to WFH.

  With metro connectivity in major urban centres, de-densification is already gaining momentum. Respective state governments need to take cognisance of these changes; if they are able to provide reliable power supply and generally good living infrastructure, it will help in developing satellite towns.

  Development of tier 2 and tier 3 cities is also in line with the government’s plans of building smart cities across the country. Goa government is in talks with STPI (Software Technology Parks of India) to promote IT and entrepreneurship in the state. As companies are increasingly becoming location-agnostic, Goa has good prospects of attracting fresh investments with its better developed infrastructure. With a good number of technical colleges, availability of skills and talent is also no more an issue.    

  In fact, the WFH phenomenon may not restrict itself to the boundaries of a nation. Global companies may see this as a workable alternative as more countries place restrictions on international labour movements.  It will also be a cost reduction exercise. Companies in Hong Kong, Singapore, London among others may find it attractive to relocate willing staff to their respective home countries.

   They may even decide to have their own local offices here to coordinate the work, depending of course, on size and nature of operations. Though a vaccine may reduce risk of COVID-19, as it appears pandemics will keep visiting us from time to time.  Post COVID there is bound to be newer business opportunities. This may actually result in demand for office and commercial space picking up quite contrary to the scenario prevailing presently. 

  Retail sector is likely to see a massive changeover. Even before the pandemic, online and e commerce portals were giving stiff competition to physical retail outlets in malls and other posh localities with fancy rental rates. There will be a geographical spread of retail space and greater demand for single shops with open skies and individual air conditioning systems. Shops cum office (SCO) structures will gain traction. In the foreseeable future, in the new format, wellness, entertainment, ice cream parlours will dominate; shopping will make way for these changes. 

   Hospitality too will change. Some of the smaller establishments, less than 20 rooms have already changed to housing units, guest houses or hostels. Single hotel business too will find it difficult to survive and most of them will be taken over by lenders. Big chains with good brand image will not only survive but may expand cautiously. 

  Real estate is not just brick, mortar and cement. It impacts the way we live, learn and work. The sector has a huge multiplier effect, meaning several other businesses dependent on it, such as finance, iron and steel, furniture, insurance among others. It will survive the pandemic, without doubt, but will see far reaching changes. For individual home buyers, it is a tough call-to buy now or wait for how cities, markets evolve in the coming months. It is better to go by the principle, ‘make haste slowly’.  

The author has four decades of experience in higher education teaching and research. He is the former first vice chancellor of ISBM University, Chhattisgarh.

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