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Covid-19 to dampen Indian real estate’s recovery over 6-12 months: Report

MUMBAI: The ongoing Covid19 pandemic is expected to keep Indian real estate subdued over the next 6-12 months forcing sector entities to contract operations, revisit planned developments, expansions, and investments, said consultancy and advisory firm KPMG.

The companies likely to come up with counter strategies to mitigate the impact focusing on cost optimization, liquidity improvement, space design, layout efficiency maximization, re-negotiations of contracts, and calibration of business operating models across the board.

As the situation moves closer to normalization with lockdown easements across India and globally in the medium term, recovery process, according to the firm, will see rapid traction, bringing new opportunities within specific real estate segments.

However, it believes, with staggered revival, the long-term outlook for real estate sector in the coming 18–24 months may likely emerge positive. Albeit social distancing norms and workplace health safety regulations affecting contraction, the real estate industry’s structural transformations will bring forth latent opportunities within untapped real estate segments such as data centers, integrated supply chains, warehousing, self-sustaining industrial parks, design efficiency processes.

“With this recent pandemic outbreak, the real estate sector is likely to be handicapped in the short term, impacting over 250 related industries and economic sectors…Ongoing financial woes as well as an unprecedented global crisis of the pandemic have unsettled the investment climate and almost no industry is insulated from its impact,” said Chintan Patel, Partner and Leader – Building, Construction and Real Estate, KPMG in India

He is of view that in addition to capitalizing on the intervention proposed by the government, the industry should resume operations post lockdown by leveraging technology innovations for enabling employee and consumer health safety standards, design flexibility, cost optimization and consumer engagement, focused localization of supply chains, reorganization of business models, which is likely to revive activity, accelerating Indian real estate’s turnaround over the coming 12–18 months.

 

KPMG sees pre-Covid19 challenges related to subdued demand and liquidity pressures to continue creating slowdown in sales in the short and medium term. Also, credit crunch is expected to create residential sales contraction; bringing down sales from 4 lakh units in 2019-20 to 2.8 lakh-3 lakh units in 2020-21 across in top 7 cities.

According to the consultancy firm, IT and business process management (BPM) will continue to drive office space demand, while flexible workspaces will re-evaluate their models as they face major headwinds over the next 9-12 months period.

It has recommended the government need to support the sector by undertaking the measures to enable the sector to not only survive but to perform to its fullest potential by providing financial support in the form of providing additional funding, loosening lending norms, extending repayment schedules, etc.

It has also suggested regulatory support in the form of reducing the number of approvals, reducing the timelines for approvals, reducing fees and premiums, and fiscal support in the form of tax incentives and reduction in GST rates, etc.

Source The Economics Times | 20/05/2020