Long Road To Recovery For Gujarat Realty
Real estate had started to look up with strong demand in affordable & mid-income housing and office spaces segment, but the covid-19 outbreak dealt a huge blow to the sector. Realty+ brings views of the Gujarat real estate leaders.
Disruptions in business cycles and social distancing norms are affecting all stakeholders of real estate sector. Given the muted consumer sentiments, liquidity pressure and slowdown in the economy, despite the government relief packages developers will be apprehensive about launching new projects.
Rocky Israni, Managing Director, India Investments, Pacifica Companies elaborated, “Gujarat’s major cities are Ahmedabad, Rajkot, Surat and Vadodra. Ahmedabad never had excess of residential stock or more than 7 to 10 quarters of inventory. So, there is no oversupply situation in Ahmedabad. Surat and Vadodra are in a worse situation than Ahmedabad. Surat has seen a huge decline in demand and faces the issue of oversupply of residential units. Rajkot is the same. Across Gujarat office market vacancy is over 40% which is highest in the country. In nigh Street retail the vacancy is at 15% to 16%. So, new projects will have issues of absorption and selling because there will be so much vacant supply in the same vicinity. I believe the sales velocity will go down and the pricing will also get rationalized. The demand and labour issues will continue for the next six months till the end of the year. The banks should extend developers loan repayment timelines so that they do not default. It is basically the onetime restructuring to complete the project. The government can give the lenders more flexibility and work with developers”
Speaking about the steps the state government can take Jaxay Shah, MD, Savvy Group, and Chairman, CREDAI stated, “The immediate steps that can be taken and one which we have advocated before also, is the reduction in stamp duty and registration fees up to 3%. If done now it will directly help buyers and will increase the demand in the real estate sector which will help several other sectors as well. Also, we have to improve our approval system and make it more robust. Moreover, the government needs to invest more and improve the education system in Gujarat. The literacy rate is high; however, we still lack a quality workforce, which is a deterrent for large corporates, IT and MNC’s.”
Owing to the standstill from the lockdown, sustaining through the length of this pandemic will be the top priority for developers. Last mile funding is one of the urgent needs of the sector to complete projects and revive sales.
N. K. Patel, Founder Director & Group Chairman, Chairman NAREDCO- Gujarat commented, “The stimulus package which the Central government has given has no direct financial intervention for the real estate industry. In Ahmedabad, the property prices in the year 2020 are the same as in 2016-17. There has not been much increase. There is a base appropriate price that we are selling our commercial real estate products due to the COVID. For the next 6 months, we have no idea how the covid situation will further erupt. The cost of labour has gone up and even the supply chain has been interrupted and as a result material cost has increased.”
However, the outlook is not as dark as it seems. The residential segment might have a tough year or two, but India’s vast population base ensures a continued demand for homes in all segments. The current government and RBI incentives, will create new opportunities for residential real estate. The work from home phenomenon also seems to short lived as will be looking to get back to the office in the medium and long terms. The retail sectors is expected to come back in a new avatar with omni-channel sales platforms and “touch-free” malls.
“Rera Six Month Moratorium For Delayed Projects Has Had A Cascading Effect On The Real Estate Sector. Customers Are Asking For Similar Extension And Therefore Delaying Payments Adding To The Financial Woes. This Actually Should Have Been Done By The Government Post Covid In Retrospect.” Rocky Israni
“The State Government Should Offer Several Subsidy Incentives Across Industries, As Stimulus Is Required In All Sectors Of The Economy. Establish And Promote The Startup Ecosystem. And Bring Relaxation In The “Prohibition Policy”, With Notified Areas And Zones Where The Policy Can Be Relaxed.” Jaxay Shah
“The Stock That Each Real Estate Company Has Will Be Consumed In The Next Two Quarters Say By The End Of December. We Will Be Able To Sell The Units, But We Will Need To Be Price Sensitive And Offer Customers Peripheral Packages. For Example Floor Rise, Road View Premium, Parking Premium Etc.” N. K. Patel
THE IMPACT OF LOCKDOWN
One of the most industrialized states of the country, Gujarat robust basic infrastructure and growth of industrial hubs have had positive effects on the state’s real estate, but given the uncertainty around economy and jobs, currently people are wary of committing large amounts for some immediate months’ duration in real estates, as an investment.
Chitrak Shah, Co-founder & MD – Shivalik Group, Vice President – GIHED CREDAI, was of the view, “Due to lockdown, when every person in the family was at home, they started realizing how important it is to have a comfortable and bigger home. Hence, more people have started looking for a bigger home. People are going to well-known & trusted brands only. They are looking for a more comfortable & bigger house with flexible payment plans.”
Swagat Vyas, Managing Director of Vishwanath Builders said, “The short term impacts include liquidity crunch amongst all asset classes’ weak construction activity and low demand of luxurious and ultra-luxurious residential segments. The steps to boost realty sector could include relaxation from banks and NBFC for construction finance benefits in term of direct/indirect taxes, decreasing the red tapeism in approval of projects and relaxation of some norms for the time being”
Aajal Patel, Director – Sales, Suryam Group expressed, “After lock down the biggest challenge which developers are facing is the disbursements of clients loans that are now being relooked at by the banks. Also, government should reduce the present GST + Stamp Duty of 6% for particular time frame to boost sales.
Shailesh Goyal, Director, Simulations Public Affairs Management Services Pvt. Ltd. added, “It will take some time before things start looking up. However, Gujarat is an industrial state and there is a lot of inward migration. The demand for houses, especially affordable housing segments, is likely to revive in the next few months. But, the demand for premium office spaces or luxury housing projects will depend on how soon economic growth returns.”
RESIDENTIAL SEGMENT TRENDS
Commenting on the revival of housing segment Jaxay Shah, “Since office work has shifted to home, it reflects in the increased interest to own a home. We have seen an increased enquiry and demand for homes in Gujarat, especially from those who are living on rent. Apart from this in the luxury segment there is an increase interest and demand for weekend plots and villas. People are looking at safe havens away from pollution and crowd. In addition to this people who already own homes are looking at larger spaces. Considering the fact that EMI in the current condition would be an issue for sale, some developers have also rolled out flexible payment plans and other payment options.”
Rocky Israni felt that demand in residential has gone up due to the pandemic.” In fact, customers are extending their budgets to buy better properties. People who are living in affordable housing now want to invest in a bigger home. People are also looking at investing in independent homes rather than apartments.”
Swagat Vyas agreed, “Long term impacts include people preference for bigger size apartments and requirements of work from home space in apartments. Also, homebuyers are increasingly asking for balconies and open spaces and high quality maintenance facility management agencies.”
N. K. Patel shared that people are moving from joint families to nuclear families and the lockdown has created an awareness among buyers that there should be proper space within our homes. “The need of a home has been established. Moreover, the home loan interest rates have been reduced significantly. They are currently at the all-time low. Also, CLSS through PMAY has helped homebuyers as they get an interest subsidy. Therefore, home buyers are aware that this is the best possible price they can get. All in all Real estate prices are also appropriately lower compared to the past few years. So I suggest that this is the opportunistic moment for homebuyers to invest for to invest.”
Aajal Patel added, “Due to Pandemic the customer now wants to buy plots / second home / weekend home / land parcel in city outskirts, where they can spend quality times with their families with safety. Going forward, projects with all the safety features, good amenities and spaces will attract buyers.”
By amendment in the General Development Control Regulations (GDCR) 2017, the state urban development and urban housing department has allowed redevelopment of buildings more than 25 years old in congested areas. Ahmedabad, Surat, Vadodara, Rajkot and other cities will benefit by this change in the rules.
BUSINESS STRATEGIES FOR FUTURE
“We are adapting to the new normal, and making it safe for our prospects and channel partners to visit our various sites, so we are gradually building up our sales pipelines. We have seen some demand in the affordable segment in the category of 1 BHK, 2 BHK and 3 BHK. We are encouraged by the numbers that we are seeing. We are also working and engaging with prospects by offering them flexible payment options as bank loans are also taking time in disbursements,” mentioned Jaxay Shah
Rocky Israni shared “We are not focusing on any sales target as real estate is a very touch and feel industry. I believe no sales can happen until the person feels comfortable on what he is buying which is only done one he has seen for himself the property and location. The sales did happen for us in these times but, they were leads that were already there in the system and got converted into sales. Also, our commercial properties in Chennai and Bengaluru are fully leased. Online shopping that was growing at 20%, this year it will grow at 40% and will increase the warehouse demand while, retail space demand will go down. As a result I don’t see new malls getting constructed in the next 15 years. Commercial projects also will face issues because a lot of businesses have turned online. Residential segment will recover once peoples income levels will come back to where they once were and that will take about a year and a half.”
N. K. Patel considers digital data to be a game changer. “In the 70s it was the Gulf countries with the crude oil and now the company with the best digital data and digital systems is the king. We too are looking at creating a special digital cell post covid that manages each and every activity off the sale process and even after sales. We are very active on all digital outreach platforms either for enquiries, sales or even post sale maintenance of our properties. We are using digital techniques to keep in touch with our old customers as well as potential new customers that are looking at booking a property.”
Chitrak Shah talking about his company’s plans said, “After COVID we have started designing our new projects to meet the needs of the recent times, such as giving extra space in new apartments that could be an activity room or ‘WFH’/ Study space. We have also come up with convenience payment plans and price protection for customers’ comfort. So, we are understanding the need & working accordingly. We were able to do business even in lockdown. We have received positive responses from customers. Our market shares are high and we have been able to reach almost 70 % sales.”
Sharing his sales strategy Swagat Vyas stated, “The Company is focusing on digital platforms and pushing through ATL, BTL marketing channels. Also the company has flexible payment plans with 80% payment on possession for interested homebuyers. We are also making on requirement site visits with the necessary precautions.”
“We are optimistic and demand is already there for specific segments like plots, farm house, second home, weekend home. In our project Suryam Repose we have sold around 40000 sq.yd land in last two months. And during Diwali we are expecting the sentimental of real estate market doing better. In the present scenario we managing leads majorly through digital sources which include various platforms like real estate portals, Instagram and Facebook campaigns,” said Aajal Patel.
THE ROAD TO RECOVERY
The Covid-19 situation in India seems to be going the roller coaster way, Residential property sales between last year’s Diwali and February were steady. In markets like Ahmedabad, Surat, and Vadodara, several new projects were launched in this period. Demand for houses was stable, and prices had increased to partially cover the rising costs. Realtors are getting some inquiries, but it may take time before they convert into sales. However, long term prospects of real estate remain strong in Gujarat. The inward migration, as well as continuing investments in Gujarat, augur well for both residential and office space demand going forward.
The prospective growth of the real estate market in Gujarat will mostly depend on the proper execution of the multiple infra projects including GIFT city, DMIC and the Dholera Special Investment region, to name a few. The industrial corridors and Smart city plans will boost commercial and retail realty as well as investments in the state.
In addition, Gujarat is a robust residential market that has primarily been driven by end-users especially in affordable segment. Several micro-markets across all major cities of Gujarat has tremendous opportunities for redevelopment schemes. Several buyers continue to prefer owning land, row houses or villas but, their preference is also growing towards mixed use township projects.
Affordable housing is likely to drive realty growth across the state if the developers get their business strategy right. And with Gujarat’s real estate better sales performance over the past years as compared to many other state, real estate recovery seems to be sooner than later.