Will Real Estate Crash or Boom in 2021?
Amid the COVID-19 outbreak in 2020, the real estate sector had a rollercoaster ride, especially due to the nationwide lockdown. However, with the country moving towards the new normal, it was expected that real estate would revive financially in 2021. But, with the second wave of COVID-19, positive predictions have taken a back seat. Now, whether the real estate sector will go ahead or lag behind, it all depends on how India handles the second and anticipated third wave of coronavirus.
Real estate experts predict that the market may fully revive in the year 2021. It is the deadly resurgence of the COVID-19 outbreak that has made the anticipation a bit hazy. With almost every state in the country under partial or complete lockdown, people struggling to access healthcare, real estate has been hit once again. According to industry reports, even though housing sales grew by 21% in the first quarter of 2021, new launches declined by 40% in the same period.
In the January-March period of 2021, home sales returned to a record low with economic and policy reforms, including lower interest rates and a cut in stamp duty. However, buyers’ preferences regarding real estate changed to larger units with additional safeguards. This is according to Insight from Square Yards’ latest report, titled “The Evolution of Home Buying Trends in Covid”. One of the major factors that have led to an increase in the demand for housing is the adoption of work from home lifestyle. Fence-sitters who were hesitant to invest in real estate till 2020 came out and invested, leading to a further increase in demand for larger units in Q1.
Effect of Revision in Home Loan Rates
Real estate may take a hit in the second and third quarters of 2021 due to the revision in home loan rates. Reports say that the second wave of COVID-19 will encourage people to save more than they spend. This is in stark contrast to the economic contraction of the first wave of COVID-19, which has been majorly shaped by supply disruptions and a prolonged nationwide lockdown. Currently, while the Reserve Bank of India maintained status on policy rates as of April 7, 2021, the State Bank of India decided to increase its home loan interest rates by 25 basis points from April. Thus, providing proof that banks will move on from the low-interest rate routine followed for the past one year.
There will be a boom in Affordable Housing
With the central government aiming to build 20 million affordable houses by 2022 under the Pradhan Mantri Awas Yojana, residential real estate is expected to improve significantly. Thus, the increase in residential units in urban cities will automatically increase the demand for commercial real estate. Also, extension of income tax benefits to buyers as well as developers for affordable housing will give a further boost to residential real estate in 2021.
Will vaccination bring back normalcy for Real Estate?
While vaccination may be a slow and steady mode of recovery for the COVID-hit residential real estate sector, it will be highly dependent on how Asia’s third-largest economy manages the availability of a vaccine for its vast population. This will have a huge impact on the overall economic revival of the country which will shape the realty segment of India.
Overall, a mixed bag of projections are being made by industry experts on whether the real estate sector will crash or boom in 2021. Changes in economic and policy reforms combined with India’s management of the second and expected third wave of COVID-19 will decide the future of real estate not only in 2021 but also for future years. While the enthusiasm shown by buyers in the first quarter of 2021 has waned so far, containment of the resurgence of COVID-19 may boost investor confidence in real estate.