COVID restrictions impair construction, walk-ins at project sites on hold; new launches may get deferred by a month 

Real estate sector to play a critical role in supporting the 'housing for all' initiative

Restrictions imposed by state governments to curb the rapid spread of the Omicron variant of COVID-19 may force developers to delay launches of new real-estate projects until later in the year.

For instance, projects in Mumbai planned for launch around the auspicious occasion of Makar Sankranti (January 14) may get deferred until Gudi Padwa (April 2) or Akshaya Tritiya (May 3).

Construction work has slowed on account of COVID-19-related restrictions coupled with rain in parts of the country and a ban on construction in the NCR to curb pollution, said Amit Modi, director of ABA Corp. and president (elect) of  the western Uttar Pradesh chapter of the Confederation of Real Estate Developers’ Association  of India (CREDAI).

“Footfalls have fallen by 30% and 75% construction work is currently on at sites,” said Modi, who expects prospective homebuyers to put off decisions on purchases by at least a month on account of the third wave of the pandemic.

Amid restrictions, walk-in visits on hold  

Buyers have had to put on hold walk-in visits to project sites in major cities because of restrictions clamped by state governments.

Over and above a night curfew, the government of Uttar Pradesh, parts of which fall under NCR, on January 10 restricted attendance of employees in government and private offices to 50 percent.

Haryana – parts of the state too are covered by NCR -- has banned large congregations such as rallies and protests, and extended existing restrictions including the closure of cinema halls and sports complexes.

On November 16, 2021, on the directions of the Supreme Court, the Commission of Air Quality Management (CAQM) had banned construction and demolition activities across Delhi and NCR to curb toxic air pollution levels.

It enforced other curbs on polluting sources such as banning the entry of trucks into the national capital, except those carrying essential items. The ban was lifted on December 20.

Modi also points out that there have been and will be fewer new launches in Delhi-NCR. In the capital, the authorities have clamped a weekend curfew, ordered private offices to  close and adopt work-from-home protocols.

Strong demand a silver lining  

Even so, some real estate experts say, demand for housing is strong enough to absorb and overcome the impact of the restrictions.

In several pockets, demand for housing has surpassed pre-COVID-19 levels on the back of historically low home loan rates, stamp duty cuts, and stable property prices, said Kapil Malhotra, principal partner and director of sales at Square Yards, a real estate platform.

“Good projects still have a great chance of being sold inspite of a third COVID-19 outbreak,” Malhotra said. “Besides, many real estate developers are not in a position to hold land for long on account of running costs. Hence, they will be compelled to launch new projects to monetise these land banks.”

Site visits by prospective buyers have dropped because of the weekend curfews in Delhi, said Saransh Trehan, managing director of Trehan Group, which is developing projects in Gurugram

“We have significant clientele coming from Delhi and most buyers plan for site visits on weekends before buying a property. If the situation does not improve soon, it may impact sales marginally,” Trehan said.

Managing labour has become a challenge and so has “procurement of raw materials due to the restrictions,” he conceded.

“However, since we are developing low-rise independent floors projects in Gurugram, which typically take 12 months to 18 months for completion, we don’t see much delay in our project delivery timeline as of now.”

Mumbai market 

A steep surge in the COVID-19 caseload prompted the Maharashtra government on January 8 to announce fresh pandemic-related curbs. The state has imposed a night curfew from January 10 onwards, and ordered schools, colleges, and other educational institutes to remain shut until at least February 15.

Local real-estate brokers say physical walk-in visits by customers to real estate project sites are down by 75% and are expected to stay low until the end of this month. New supply is also likely to feel the impact of the restrictions.

“More than 7,000 housing units were expected to be launched on the occasion of Makar Sankranti on January 14. These may be postponed by a month or so and may now be launched on either Akshaya Tritiya or Gudi Padwa,” said Ritesh Mehta, head of residential property sales at JLL India.

Most of the projects have been developed by Tier 2 builders and had been expected to be launched under a concessional scheme introduced by the Brihanmumbai Municipal Corporation (BMC) for which developers paid upfront to receive approvals.

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Last year, BMC received a record sum of over Rs 11,000 crore from Mumbai builders rushing to avail of the 50% discount on premiums starting in January 2021. In 2021, BMC halved the hefty premiums developers pay to it and the state government for additional construction rights when the civic body’s finances were hit following the 2020 Covid-19 lockdown.

According to reports, more than 600 construction projects in Mumbai, involving new projects as well as redevelopment projects, had become unviable because of the high premiums.

Dilution of coastal zone norms 

Rushing to take advantage of these concessions were builders from the western suburbs (between Dahisar and Bandra), who paid around Rs 6,500 crore to the corporation between January and December 2021. Most of these were for society redevelopment projects where the market in the western suburbs has suddenly picked up due to the dilution of Coastal Regulation Zone (CRZ) norms, which had restricted construction activity near the coastline.

This concession helped many redevelopment projects launched by Tier 2 and Tier 3 real-estate companies to become viable because of approval costs being reduced by half.

Since most of these Tier 2 developers had paid these charges upfront, they may not be a position to hold on for long to the new projects, whose financial viability may be impared. They may decide to launch these projects on the occasions of either Akshaya Tritiya or Gudi Padwa, said Mehta.

A majority of the new projects in suburbs such as Goregaon, Borivali, Kandivali, Ghatkopar and Mulund have been developed by Tier 2 and Tier 3 builders; the supply expected to hit the market this year are mostly standalone buildings or redevelopment projects. Last year, 60% of the supply came from Tier 1 developers and the rest from Tier 2 and Tier 3 developers.

“This year the matrix may get reversed with 60% of supply coming in from small developers active on the redevelopment front,” explained Mehta.

Niranjan Hiranandani, vice chairman of the National Real Estate Development Council and managing director of the Hiranandani Group, agreed that following the third wave and the subsequent restrictions imposed by the state government, walk-ins have slowed although enquiries about virtual tours increased.

Most launches have been pushed to mid-February,” he said.

Bengaluru: minimal impact expected  

In Bengaluru, too, site visits have dropped by at least 70% because of weekend curfews.

“While demand continues to remain upbeat, we are seeing some drop in site visits across cities. However, this is more visible during weekends, partly because many cities have imposed a weekend curfew,” Ashish Sharma, Bengaluru head of the Anarock Group, told Moneycontrol.

“For instance, last weekend in Bengaluru there was a curfew and hence site visits reduced by at least 70%..,” Sharma added.

Given that the number of hospital admissions caused by the third wave of COVID-19 has been limited and the symptoms of the Omicron variant tend to be mild, “we anticipate minimal impact on sales and new launches,” he said.

“As long as the third wave remains less catastrophic than the second wave and there are no major restrictions, residential real estate will be less impacted,’ Sharma said.

Housing vs. office space 

A Knight Frank report released in the first week of January noted that housing sales across the top eight cities rose 51 percent last year, even as the office market continued to slump due to the pandemic with gross leasing declining by 3 percent.

Housing sales increased to 232,903 units last year from 154,534 units in 2020, but demand was down 5 percent from the 2019 pre-pandemic levels and 37 percent lower than the 2011 peak numbers.

Gross leasing of office space fell to 38.1 million square feet in 2021, from 39.4 million square feet in the previous year, because of the adverse impact of the second wave of the COVID-19 pandemic. Demand was much lower than the record 60.6 million square feet achieved in 2019.

Housing sales momentum should continue in 2022 unless there the Omicron variant has a serious impact in the coming few weeks and months, said Shishir Baijal, chairman and managing director of Knight Frank India.