Indo-Pak Standoff: How the real estate sector fares in times of war

INDIA-PAKISTAN-KASHMIR-UNREST

During the 1971 war between India and Pakistan, the government tightly controlled the supply of steel and cement, and the sale of homes plummeted. However, as the economy opened up, these scenes were not repeated during the Kargil War, and are unlikely to repeat in future  too,  if a full-scale war breaks out between the two nations, according to industry veterans.

For starters, the market has become even more organised and corporatised since the wars in 1971 and 1999, and sales have also grown many times, in a more sustainable manner, say developers.

Even as home sales are expected to remain largely steady, a slight impact is expected in offices, as large corporates, especially overseas ones, may put off plans to set up in India.

1971 Indo-Pak War: Impact on housing, commercial and hospitality real estate

According to ANAROCK, a real estate consultancy firm, the 1971 war did impact the country’s housing market as in Mumbai - then Bombay - the state government put an iron grip on cement and steel, which resulted in a 12 percent reduction in the approval of housing projects. Not surprisingly, property registrations in the city reduced by almost 10 percent in 1971.

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Ashish Mishra

Prinicipal Correspondent|moneycontrol

Similarly, the war also hit commercial real estate as the development of private office spaces came to a grinding halt. Locations like Mumbai's Fort area and Delhi's Connaught Place saw massive vacancy rates - however, office rentals did not sink because of the limited supply, and due to inflexible regulations.

Also Read: Indo-Pak tensions could dent north India home sales by 5-10%: ANAROCK

“Back in 1971, India's high-street retail scene was mostly unorganised and uncharted, but local shops in Old Delhi and Kolkata saw a significant drop in footfalls. According to available court records from 1971, shop rent disputes in Mumbai rose by 18 percent due to increased stress among tenants, ANAROCK said,” Prashant Thakur, Regional Director and Head – Research, ANAROCK Group, said.

He said that, unsurprisingly, Foreign Tourist Arrivals (FTAs) reduced to 1.96 million in 1971 from 2.02 million in 1970. In Delhi, hotel occupancy dropped to under 45 percent and even the hospitality major of the day - the Indian Hotels Company - saw revenues drop in double-digits, especially in areas that were directly affected by the war - especially Srinagar.

The 1999 Kargil War: A short but hard impact on housing, commercial and hospitality real estate

The Kargil standoff, which lasted three months, resulted in considerable short-term market panic. However, India’s economy was liberalised and far more resilient by then, and recovered quickly.

During the Kargil War, the housing rental values did take a direct hit - in Delhi and Mumbai’s prime residential locations, rental values plummeted by anywhere between 3–8 percent in these three months and bottomed out by 1999-end.

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Interestingly, despite the conflict and all its ramifications, luxury apartments in Mumbai's Cuffe Parade still commanded then-handsome prices of between Rs 20,000-Rs 23,200 per square foot.

The year 1999 saw approximately 4.8 million square foot of new office space hitting the main cities. In CBDs like Connaught Place, vacancies increased anywhere between 11-15 percent and rentals dropped marginally. Large international companies did not cancel their leases, but did defer them in most cases.

Back then, Bengaluru was not yet India's fully-established Silicon Valley, but places like Koramangala had full-fledged IT parks which saw undeterred leasing at rents ranging between Rs 35–65 per sqft per month.

Premium retail real estate commanded higher rents than commercial real estate, but the conflict prompted most enlisted retailers to put their store openings on hold.

North India saw spiralling hotel cancellations to the tune of between 20–30 percent in these three months. Hotels in Delhi and Kashmir took a major body blow, with MICE bookings getting cancelled en masse. Interestingly, Kargil became a popular tourism destination after peace was restored and by 2003, saw its tourist footfall double to 44,000 per year over the pre-war numbers.

What to expect now?

Experts said that past wars and conflicts have taught (us) that war can temporarily slow down market sentiment and freeze decisions, but  cannot break India's real estate market.

Thakur of ANAROCK said that there may be some short-term sluggishness in the market, but there is no question of an outright plunge. Residential absorption in Delhi-NCR and other parts of north India may witness a short-term dip of between 5–10 percent if the standoff continues for long.

“Luxury housing buyers tend to delay purchases in periods of uncertainty. Much has changed since the bombs last flew at scale - the country's economy has strengthened considerably, its real estate sector has become more disciplined and regulated,” he said.

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Aditya Kushwaha, CEO and Director, Axis Ecorp, a real estate developer, said that in the short term, buyers—particularly in North India—may adopt a wait-and-watch approach. However, real estate remains a long-term asset class driven by fundamentals.

“We believe that while the current environment may slow decision-making, once there’s greater clarity, activity is likely to pick up. For now, most stakeholders are expected to remain in a wait-and-watch mode,” he said.

A real estate developer based in Mumbai said with the just-concluded crisis, in which companies see instability through blackouts, airport closures, flight diversions, or missile attacks on major cities, they may choose to defer their plans of entering India, or expanding their base in terms of leasing more space or hiring more talent.