How the Covid-19 pandemic presents an opportunity to the Real Estate Sector
Mike Tyson, the renowned boxer, had once commented that “Everybody has a plan until they get punched in the face”. The same rule applies to the real estate sector, including the residential property management industry.
Now, any property management services company will vouch that the real estate sector was hit by three tsunamis. These include demonetization and legislations including the Real Estate Regulation Act and the Goods and Services Tax. As a consequence, the industry became weaker, which was contrary to the noxious highs that were seen during the previous years.
Before the onset of the Covid-19 epidemic, the realty sector was struggling with several issues. Inventory outcropping, various issues of customer resistance, and uncompleted projects throughout the country – all are included in this list.
Not only was the industry grappling from tons of surplus inventory and moderate demand and falling sales and dispirited investors, but also puny balance sheets of several developers, some of whom have vanished. In turn, nobody was availing rental property management services too.
Additionally, the crashing of DHFL and IL&FS piled on to the real industry crisis. As a result, the NRI property management companies also took a hit.
The developers were backed by high-end octane-driven debt financing, which many NBFCs were depending on for the money inflow for refinancing projects. With the collapse of the NBFCs, the party was over.
Also, liquidity was most sought after, resulting in NBFCs scrambling for funds to reduce their troubles.
Several financial institutions were into short-term borrowing and long-term lending, particularly on illiquid realty assets, several of which did not start. Consequently, the NBFCs were facing a huge asset-liability disparity.
The records were suggesting a distraint property market.
Going by the recent reports, real estate developers in seven main Indian cities had unsold stock touching around Rs 3.7 trillion. Further, over 60000 houses were not bought. Consequently, the rental management companies were recording dwindling revenues.
Owing to the Covid-19 pandemic, workers are also leaving the construction sites and heading home due to the uncertainty that plagues the world over.
Deepak Parekh had also pleaded the Reserve Bank of India and other related stakeholders for a one-time loan restructuring plan for revising the non-performing assets recognition regulations to 180 days rather than the prevalent 90 days.
However, the Covid-19 pandemic has presented an opportunity for numerous special situation realty-based funds. They can play the role of catalysts for giving the requisite liquidity boost and stimulus to the real estate sector. Plus, the property management companies in India stand to benefit.
Such special situation funds (SSFs) require restructuring holistically to include the big-bracket private equity funds, especially the ones that have been investing in commercial properties with big corporate developers, who can contribute to executing and marketing projects while keeping their expertise in mind.
With the sponsored vehicles getting the backing of large foreign PE shops and big developers, they can obtain substantial projects that are blocked due to liquidity issues and lack of other resources.
Due to the comparatively low valuations of unsold inventory, the specialized vehicles can adopt stressed projects at discounted rates, which can create sufficient incentives for the economic structures.
For example, large-sized private equity companies (like Brookfield and Blackstone) can team up with renowned real estate giants (such as Oberoi Constructions and Godrej Properties).
The combination of both partners can lead to buying out the current distressed developers’ projects and complete them by providing the requisite funds, with the needed expertise brought in by the development partners.
By doing so, customer confidence can be restored, with assurances of timely delivery. Moreover, prospective customers avail home loans from banks. Keeping in mind the renowned brands associated with the project and assured financing, the banks will be comfortable giving loans too.
Besides, with the finance ministry announcing the suo moto extension to all real estate project timelines by six months, the SSFs have greater incentive and more time to evaluate all uncompleted projects.
These special vehicles can help in reducing the troubles of the large-sized projects that remain stuck around the country.
With the real estate market witnessing an upswing, people who invest in property and live elsewhere can avail the advantages of property management services as well.
Looking Forward to the progressive Real Estate Market
We must not forget that the construction sector stands only second to agriculture with respect to recruiting employees. And by extending the required support, the real estate industry can start booming once again while reducing the unemployment levels. In the process, the country will benefit at large.