Impact of COVID-19 on Budget Housing Projects in India

Impact of COVID-19 on Budget Housing Projects in India

SUBMITTED BY: RP20021 (Yash Bathiys)
RP20022 (Sejal Navandhar)
RP20023 (Manasvi Sethi)
RP20025 (Abhi Harpal)

SUBMITTED TO: Dr. Jonardan Koner

SUBJECT: Applied Economics in Real Estate and Urban Infrastructure

DATE OF SUBMISSION: 16/12/2020

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| REUIM12 | Trimester-II
 Impact of COVID-19 on Budget Housing Projects in India

Introduction
Budget housing can be defined as housing units that are affordable to the segment of population
whose income is below the average household income. Affordable Housing for All was first
sculpted as a goal in India's 2007 National Urban Housing and Habitat Policy (NUHHP). It came
to prominence in the response to the 2008 Global Financial Crisis (GFC) when subdued demand
for real estate and economic slowdown prompted Indian real estate investors to concentrate on
affordable housing. However, the greatest raise came when the Government of India introduced
the Pradhan Mantri Awas Yojana (PMAY) – Urban in June 2015.The COVID-19 pandemic has
especially impacted the housing market, but policymakers have rapidly reacted with a variety of
steps in order to mitigate the devastating effects on tenant, investors, constructors and lenders from
the crisis. Even then, any of these steps, whether they are temporary, may come in the way of a
robust recovery or hinder the responsiveness of the housing sector to the emerging demands of
people.

Definition of Affordable Housing- MHUPA 2012:

Income
Size
Categories
EWS • 21-27 sqm of carpet area
• EWS maximum area
could be between 25.2 and
30.8 sqm if subsidies are
tied to them
LIG • 8-40 sqm of carpet area
• Maximum area for LIG
could be between 36.9 and
45.1 sqm if subsidies are
tied to them
MIG • 41-60 sqm of carpet area
Income Criteria Affordability
The maximum Household The Task Force
Income for the EWS and LIG recommends that
category are recommended to the desirable goal
be INR 8,000 and INR 16,000 of a house price to
per month and since many income multiple
households in this category do that should be
not have regular monthly pursued for
income an annual income of Affordable
INR 100,000 for EWS and Housing projects
INR 200,000/- for LIG should be 5.
households could also be
used.
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 Impact of COVID-19 on Budget Housing Projects in India

Impacts on Budget Housing Projects

The outbreak of the Covid-19 pandemic and the subsequent lockdowns have had significant impact
on all businesses, including real estate. All construction activity had to be completely halted during
the lockdown phase.
Post lockdown, while cost of inputs such as steel and cement have increased, the availability of
construction labour has gone down. This has not only increased the cost of construction for
developers but has also caused delays in project completions.
All these factors can create significant financial pressures on real estate developers across
segments, but the impact on affordable housing players will be relatively more.
• The cost-time-revenue matrix of affordable housing projects is extremely critical in keeping
these projects financially viable for developers.
• In the present situation, as all three variables of the matrix have been adversely impacted,
developers will find it increasingly difficult to complete their projects. This may drive away
developer participation even further and thus impact affordable housing supply in the market.
On the demand side, home-buyers are likely to postpone or cancel their home purchase
decisions in light of the frail economic conditions.
• Job uncertainty, pay-cuts and the tight lending norms are likely to be impediments to affordable
housing demand, especially in the Low Income Group (LIG) segment. In H1 2020, affordable
housing sales have fallen by a sharp 57% YoY.
Extension of the Credit-Linked Subsidy Scheme (CLSS) up to 31st March 2021 is an added
incentive for the Middle-Income Group (MIG) buyers.
• The extension of Real Estate Regulatory Authority (RERA) deadlines for project completions
will give the developer community a much-needed breather.

On the whole, the affordable housing segment has the potential to recover faster than other
residential segments. The target audience of this segment are the LIG / Economically Weaker
Sections (EWS) and MIG earners who form a sizeable chunk of India’s total population.
If sufficiently incentivized, the affordable housing sector could benefit significantly from the sheer
size of its target group.

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 Impact of COVID-19 on Budget Housing Projects in India

Advantages and Disadvantages

• People with salaried incomes are facing difficulties in paying rents during this time, the
affordable housing demand will get pushed because of this factor.
• The recent announcement of banks switching to reduced home loan rates will also give a boost
to the affordable housing sector.
• It is mainly due to the realization that owning a home is important.
• Amid the gloomy scenario of fewer site visits, there was a notable rise of 20 per cent in
enquiries as people are having plenty of extra time due to lockdown. The demand will also get
thrust from the government’s redressal measures.
• Technologies such as Aluminium Form Works technology will come to the rescue, as it will
help reduce the time of construction as concrete walls are used instead of brick walls.
• Possible negotiations - Builders and property agents are desperate to clear their inventory, to
generate liquidity and resume cash flows. Some of the builders are also offering refundable
booking amounts, to lure home buyers. So, this can be a good time for you to negotiate a deal
with your developer/agent.
• The Coronavirus crisis has not only changed the way we live in a society but has also impacted
supply chains and industries across the globe, including the real estate sector. However, despite
the adverse impacts, the pandemic has also opened a new era of investment into affordable real
estate, which was under-utilised till now.

• Another factor that will push demand for affordable housing is the recently announced policy
measures by the Central Government. Reduction in the Reverse Repo rate, an extension of
RERA deadline and the recapitalisation of NBFCs alongside earmarking Rs 10,000 crore for

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 Impact of COVID-19 on Budget Housing Projects in India

the National Housing Bank (NHB) will ensure a smoother flow of capital to the HFCs, thereby
extending credit support to the real estate developers.
• Conclusively, homebuyers are in an advantageous situation as they have more choices, and the
prices are at an all-time low. At a time when the interest rates are low, State governments are
waiving the stamp duties and giving a push to the budgeted housing sector; the time is ripe to
take advantage of the opportunity.

Impact on economy

The COVID-19 pandemic has adversely impacted the real estate industry, specifically affordable
housing, which particularly targets the middle-income households. It impacted both residential and
commercial sectors – while 73% of the residential developers witnessed a complete standstill in
sales, more than 90% of the commercial developers witnessed delay in (either whole or part of)
their rental receipts, reduced footfalls in retail malls and less than 5% occupancy in hotel
properties. With cash flows impacted, companies had enough liquidity to address fixed costs and
debt servicing for less than 3 months. The construction industry in India employs over 4 crore
people including 80 lakh and workers in the home construction sector. However, the pandemic
brought the Indian construction industry to almost a complete halt. The home construction sector
was suspended during the lockdown there was large scale labour migration as well as a complete
disruption of the raw material supply chains.

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 Impact of COVID-19 on Budget Housing Projects in India

Conclusion
The RBI has reduced the repo rate to 4%, making borrowing cheaper for home buyers.
Consequently, home loan interest rates are already as low as 6.95%. This would act as a booster
for buyers to invest in property at a cost advantage, once clarity on the impact of COVID-19 on
the job market is known.

Housing prices in some of the mega cities of India have witnessed significant correction. While
expecting appreciation in the near future would not be a wise idea, this present scenario does
provide investors with an opportunity to put their money in residential real estate at a low price
point.

What should an investor do?

• Since prices are unlikely to undergo any further correction, this could prove be an ideal
opportunity for buyers, if they are able to arrange the funds. Since home loan interest rates are
also at record low levels currently, housing finance is also available to buyers and investors at
comparatively affordable prices.

• In conclusion, infusion of liquidity in the market is of utmost importance and the latest
announcements will help the economy.

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 Impact of COVID-19 on Budget Housing Projects in India

References
• https://www.constructionweekonline.in/business/15601-covid-19-impact-on-indian-housing-
construction-sector
• https://www.outlookindia.com/outlookmoney/amp/real-estate/affordable-housing-will-boom-
post-covid-19-4809
• https://www.outlookindia.com/outlookmoney/real-estate/affordable-housing-will-boom-post-
covid-19-4809
• https://www.financialexpress.com/money/affordable-housing-may-recover-faster-post-covid-
19-but-challenges-remain/2054951/
• https://www.ibef.org/download/Affordable-Housing-in-India-24072012.pdf
• http://www.naredco.in/notification/pdfs/Affordable%20Housing.pdf
• https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/AFFORDABLE609D506CB8C247DAB526C4
0DAF461881.PDF
• http://ficci.in/spdocument/23169/Affordable-Housing-Report-Spread-View.pdf
• https://economictimes.indiatimes.com/wealth/real-estate/covid-19-to-hit-affordable-housing-
growth-over-6-1-lakh-units-impacted-in-top-7-cities/articleshow/75043420.cms?from=mdr