The second wave of Covid 19 seems to be more intense and lethal as it has gobbled up hundreds and thousands of lives. It has dampened the real estate sentiments of developers and home buyers. Anyhow, this is a timely crisis and cannot budge the resilient real estate. Its residential demand cannot diminish, though it may shrink for a while due to the external factors. Real estate may project cloudy weather due to the harsh pandemic and restricted cash flow in the industry but will gear up soon.
TABLE OF CONTENT
1.Second Wave Might Obstruct the Cash Flow
2.Impact of Second Wave on Construction Industry
3.Commercial Sector Hit Again
4.Silver-lining seen in Residential Sector
1. Second Wave Might Obstruct the Cash Flow
The second wave of the pandemic has devastating effects on most of the industries and real estate is not an exception. Construction sector is targeted again by the second wave. Projects have been jeopardized and put on the noose due to various factors. Partial lockdowns and night curfews are again a threat to the mass exodus of migrant workers. The fear of complete lockdown has brought another wave of reverse migration. The construction sector was already reeling under the first wave and was just trying to hold the ground, when the blow of the second wave started its tremors. The construction sector was already facing financial constraints and dwindling output, the second wave has come as a harsh blow and might obstruct the cash flow. In real estate, cash flow is the difference between the cash received and the cash given out by way of payments. During partial lockdown, the chance of receiving cash in the form of bookings from the home buyers is decreased but the outgoing cash remains almost the same in the form of various payments. Hence there may be chances that the second wave might obstruct the cash flow.
During the first wave, when there was a complete lockdown and a mass exodus of workers and a complete halt in the construction sector, the government has stepped in and there was some financial relief to this sector. There is no such relief during the second wave from the government as there is only partial lockdown in some cities whereas others followed a complete lockdown. Though large and medium sized developers have already come up with some arrangements for their workers and are taking necessary precautions at their sites, the second wave may affect those who were not prepared for various reasons. There are chances of such developers facing issues with the cash flow.
2. Impact of Second Wave on Construction Industry
Along with other sectors, the construction industry has been facing a negative impact of the pandemic on its projects which have been paralysed due to various factors. This sector was already under stress during the first prolonged lockdown and was recovering from that blow, now that second wave hits it again. But this time the scenario is different. This time, real estate is well prepared to look after the labourers at their respective sites. Complying with the state governments SOPs, the labourers are taken care of food, shelter and healthcare requirements. The workers are also being paid regular wages in spite of the slowdown of the work. This is preventing workers from reverse migration and the majority of labours are available at the site. Adequate measures are taken at the sites to retain the workforce like sanitization, health check-ups, provision of food and shelter and also vaccine awareness. As there is no stringent lockdown so far and the essential services are still easily available, things at construction site are not that grim like before. They may resume back to construction once the temporary lockdown eases without giving that deadly blow like the first lockdown but the sector might face issues with cash flow in this phase of the second wave.
3. Commercial Sector Hit Again
With the first lockdown the world had almost come to a halt for a while and then came a revolution of work from home. This concept has hit the commercial sector. The clouds of the first wave of pandemic had not even cleared when the country was hit by the second wave, thus delaying the recovery of the commercial sector. The challenges posed by the second wave are adversely affecting the expansion plans of corporations. They are also postponing their office leasing decisions and taking a backseat because in the present scenario the offices need to be equipped with the SOPs of the government and they are not in the situation to fulfill them. Hence work from home is becoming the better option. Moreover companies are shifting their focus to minimize their fixed costs and seeking cost control measures, and one of the best ways is to reduce office maintenance costs. The recovery of the commercial sector might take a delay as the second wave forces the companies for cost cutting. The commercial sector may take a short nap due to imposed restrictions; but the long-term prospects will show some blue sky.
4. Silver-lining seen in Residential Sector
Though the second wave of the pandemic has shown its terror to the real estate sector too, things at the sites are better as compared to the first wave. The sector has been reviving its traditional strategies with new transformational and innovative methods for a sustained recovery. Reduced interest rates have still been luring the home buyers and the second wave has of course some positive effect on the sentiments of home buyers. An own home has become the main aim in the present conditions. The fear of the second wave of pandemic has added to the woes and has made the buyers postpone their real estate plans but these will be for a while. The demand for the affordable and mid-income segment is expected to recover as it is supported by the government’s credit-based subsidy scheme. Demand is expected to increase on the fringes and the peripheries as these are more affordable and the remote work culture is fuelling this trend. Buyers had regained confidence in the last quarter of last year but went back into hibernation due to the second wave of the pandemic. The lower home loan rates, the lucrative payment plans and freebies by developers may return the housing demand to the pre-pandemic levels. Projects that are nearing completion may push their delivery deadlines as there is a disruption in the supply of raw material as well as the sector is facing various other challenges. New launches may be delayed but the focus will be on completing the existing projects with limited labour and cash flow. Hence it is expected that this second wave of pandemic may shadow the cash flow of real estate.
– Written By Pallavi Krishna
