COVID-19 and its impact on the real estate

COVID-19 and its impact on the real estate

While the recent lockdown has totally changed our lives, putting our work and finances in a jeopardy, our future depends on how we utilize the time available today. The lockdown gives us ample amount of time to ponder upon key decisions taken and that needs to be taken. Remarkably, one thing that has stood between us and the disaster is HOME. The sense of safety and security that a home brings for a family is irreplaceable. It is a physical as well as an emotional comfort zone where one heals and recuperates through tough times.
A critical question arising out of the COVID-19 scenario is, what will be the fate of home buying and the real estate sector post the lockdown? Studies and reports suggest that the real estate sector will decline; witnessing the worst-hit till date and survival will be a challenge. However, as said by Benjamin Franklin, “Out of Adversity comes Opportunity”.

Probably most of the people interested in buying real estate would be withholding their decision till the lockdown opens due to speculations in the market or risk pertaining to economic conditions. Yet any clever investor who is observing the current market will testify that investing in real estate during this lockdown is the smartest move. Here is why –

  • Reduction in home loan rates: On 27 March 2020, the Reserve Bank of India (RBI) reduced the repo rate by 75 basis points (bps). This reduction saw the repo rate reduce from 5.15% to 4.40%. New home loan rates started at 8% from 1 March 2020. So indeed this is a good time to buy your home if the decision was just hiding behind the corner for some better rates or good units.
  • Low demand – value for money: Real estate facing deficit demand in the market lead to the generation of various attractive offers by the developers. To maintain the good books, developers are currently offering very low rates, lucrative payment plans and additional offers resulting in lowering the cost of the property. End-users can expect to buy a property at a price as low as the launch price during this lockdown.
  • Reduction in stamp duty: The Maharashtra government on March 6th 2020 announced that it is reducing stamp duty on properties by 1% for Mumbai, MMRDA Region and Pune for a period of two years.
  • Passive income: Various small investment options are being introduced in the market starting for as low as Rs. 5 lacs in real estate, that too with a rental income. This again is an opportunity to create a separate asset class in your portfolio and start a source of passive income.
  • Demand-supply breakthrough: Due to the low demand, discounted rates on good inventories are available. But once the economic condition will start settling, the bargain will reduce and demand will also start floating upwards. The rates will not be as low as they are now during the lockdown.
  • Strike the iron when it is hot: We all must have heard about this saying at least once. But it’s time to implement the strategy to gain extensive returns on the investment. Not only the rates are strikingly low, but the return on investment that are being offered by some developers is also as high as 15%-18%.

With an overall economic slowdown, we should not overlook the possibilities of the Indian real estate sector growing faster than the rest of the world. Owning a home is a matter of pride and esteem in India. The sentiment runs around the ritual of passing the home possession as a heritage from parents to the future generations. Interestingly, after our first name, ‘Home’ is the second most used word in the world, every day. Ultimately, whatever be the circumstances, people across the world will not stop investing in a home or buying real estate.
Statistically, the Indian real estate’s growth trajectory, since the past few years is likely to emerge stronger and is projected to be USD 650 Bn by 2025 and USD 1,000 Bn by 2030. Residential, commercial and retail are the three key asset classes which have primarily been contributing to the sector’s growth. Real estate contributed nearly 6% to India’s GDP in 2017. As per the projected growth trends, the sector’s contribution is likely to rise to 13% to India’s GDP by 2025.
Real estate is not paper money, this is the asset you can hold tangibly which again increases its reliability and return on investment. It also helps you build wealth in long term due to dual advantage of the regular “predictable” returns (yield is higher than dividend returns) and an “assured” capital appreciation in the long term.

The Bottom Line
Real Estate cannot be lost or stolen, nor can it be carried away, purchased with common sense, paid in full, and managed with reasonable care in tough times like COVID-19, it is the safest investment in the world.

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