What are the factors to consider while purchasing a property after lockdown?
Supply-side considerations
Residential property prices generally fall when there is an oversupply of unsold houses. But, in this case, during this pandemic, there is no such scenario. But, the reduction of student visas is likely to reduce the overall demand as some people will continue staying in India after going through the disease themselves. This can be termed as a partial offset by an influx of the demand coming back from overseas.
In this case, it can be deemed that the majority of the newly constructed residential properties are likely to target the first home market that is priced competitively and reflect the underlying land values and build costs.
Thus, it can be considered that there will not be a reduction in property prices. The government, on the other hand, will be competing with the public and private sector by kicking off the large scale infrastructure properties. Furthermore, building material supply-chains will be broken.
This could result in a reduction in the costs of lands. However, even before the lockdown, there was pressure on those prices. But, for the maximum part, those were resolved by creating increasing density and smaller sections.
Demand-side considerations
Mortgage rates remain at record lows, that increases affordability. But, this will turn out to be an offset by cheaper post-COVID profits. There will be elevated unemployment initially, expected approximately 10%, although it will be fixed in the non-home owning section of the community. The bulk of job needs will be beyond low wage businesses – retail, tourism, and entertainment. It will additionally hit on the youth unemployment, and the gig economy. The latter will be slightly unauthorized and proceed unreported.
The impact on residential property costs will be increased in markets that depend on tourism and provided with lower levels of homeownership. It will disproportionately influence landlords in these areas. Landlords will need to face rising rent arrears, cheaper rent yields, including other motivated merchants if they are attempting to sell.
Developer/Builder Problems
Other than the factors stated above, there are some other problems too. Among them, the problems faced by the builders of the residential property is of utmost concern. They are likely to be running out of operating costs as far as construction is concerned. This might result in a delay in possession of the residential properties and can cross their due dates.
Furthermore, due to the pandemic outbreak, workers will not be ready to work as the previous full-fledged sessions. So, post lockdown, the lack of workers can also result in the unnecessary delay of a particular project. This will hinder the end-user from instantly moving into the property creating an unnecessary customer-developer fuss.
Investor Opportunities
When it comes to the investors, they are the ones who can rule the game. They can be considered as ultimate gainers in this case. Due to huge financial pressure on the builders, they are likely to cut prices to some extent. This is going to attract investors like a boon in their life. However, if the investors do not work on the fundamentals of business deals with the developers, they might face problems before ultimately finalizing the deal.
Khetab Alam
May 06-2020
When it comes to the investors, they are the ones who can rule the game. They can be considered as ultimate gainers in this case. Due to huge financial pressure on the builders, they are likely to cut prices to some extent. This is going to attract investors like a boon in their life. However, if the investors do not work on the fundamentals of business deals with the developers, they might face problems before ultimately finalizing the deal.