Almost 95% homebuyers have postponed their decision to buy a house due to the COVID-19 related uncertainties. A staggering 98% real estate developers are facing reduced customer enquiries, 92% are experiencing labour shortage at construction sites and over 82% are facing project approval delays, a report by Credai National has revealed.
The report accesses the impact of the second wave of COVID-19. It’s findings are based on surveys conducted across North, East, West and South zones between May 24 and June 3, 2021, to assess the impact of second wave of COVID-19 on real estate sector in India. As many as 4,813 developers from 217 cities participated in the survey, providing crucial insights on the industry sentiment and the range of challenges faced by the real estate sector.
Over 95% developers are of the opinion that project delays are inevitable if no urgent relief measures are injected in the sector by the government and RBI. These delays are due to labour shortages being experienced at construction sites, high cost of construction material and approval delays from authorities, the COVID-19 Impact Analysis Report by Credai National has said.
As many as 92% developers are experiencing labour shortage at construction sites, 83% developers are working with less than half the workforce, and over 82% of developers are facing project approval delays, the report said.
It said that the recent spike in construction materials including steel, cement etc have contributed to more than 10% increase in construction cost for more than 88% developers.
Liquidity crunch has further added to the problem with 77% developers experiencing issues in servicing of existing loans, 85% developers facing disruptions in planned collection, and 69% facing issues in disbursement of customer home loans, the report said.
Almost 90% of real estate developers are of the opinion that the second wave is far more intense than the first wave, the report said.
So, what needs to be done? As many as 78% developers are of the opinion that stamp duty waiver and reduction will help in demand creation. As many as 75% believe that input tax credit on GST and others will improve financial viability of projects. As many as 66% say that loan restructuring will help alleviate financial constraints.
“The real estate sector showed tremendous resilience in bouncing back on a cautious recovery path post the first wave, despite little relief measures. However, the second wave has prompted us to reflect and re-evaluate the growth path of the industry, and we felt it was vital to assess the challenges faced by the customers and industry partners in light of the recent developments. The findings reveal that the second wave has had a more debilitating impact on the real estate sector than the first wave,” said Harsh Vardhan Patodia, president, CREDAI National.
He said that extension of validity of existing approvals should be accorded to the sector for almost nine months as even after the lockdown is lifted it may take months to mobilise labour and materials. “Going by the impact of the first wave, it may take another six to nine months for normalcy to return,” he told reporters.
The survey findings by the apex body of real estate developers also puts the spotlight on changing consumer behaviour, resulting in slowing of demand due to decrease in enquires and site visits.
A staggering 98% developers are facing reduced customer enquiries and 42% developers are experiencing a 75% decline in customer enquiries. The second wave has caused 95% of customers to postpone their purchase decisions, the report said.
“We have made a representation to the government citing the current survey and requesting the government to infuse urgent financial stimulus and initiate quick progressive measures to assist recovery,” Patodia said.
"As a part of our presentations, we have requested for liquidity infusion, one-time restructuring of loans, across the board nine months extension of completion date by Rera, stamp duty reduction or waiver, moratorium extension on principal and interest for six months, and freezing of SMA classification for another year. We are hopeful that the government will consider our appeal and will make urgent interventions this time," he added.
The apex developers’ body also feels that reducing cost of construction materials, implementing single window clearances for project approvals and work commencement, and allowing input tax credit for all sectors will help the business.
Satish Magar, chairman, Credai National said that developers have demanded that IBC action against borrowers be frozen and that they be allowed to avail credit of input tax paid in the process of procurement of goods and services.
In the real estate sector, GST is paid at the rate of 18% and cement is taxed at 28%. The total value per sq ft with the GST cost works out to be an additional Rs 360 to Rs 500 per sq ft which leads to an increase in cost by 8-12% for homebuyers, he explained.