Post covid- buy or rent

A V Sai Vandan Reddy, AH20151

National Institute of Construction Management & Research, Hyderabad,

India

Date: 15/12/2021

Date of revision: NA

This study refers to the impact on real-estate sector post covid, whether the buyers are
choosing rentals or purchase of homes. This study also compares various prices of rentals and
purchases and gives the inference which is better with respect to current statistics and
theories.

Keywords: Real estate, Buy, Rent, Covid, Lockdown

Setting: Real Estate, India

Subject Area: Real Estate Investment

Length: 7 pages

Source: Authors
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National Institute of Construction Management and Research, Hyderabad

Post covid buy or rent

1. Introduction

Businesses have been propelled forward by the disruption caused by the COVID-19 outbreak.
The once-slow and leisurely journey of real estate, with lots of stops for planning, dreaming,
and advising, has now been accelerated to meet future problems. Technology, rather than just
concrete and mortar, will drive the future. The desire to work from home has been one of the
urgent changes brought on by the pandemic. This tendency, which has already been absorbed
to a large extent, will most likely become the new standard. It's been over a month, and
numerous companies have already implemented the new work-from-home mentality. Remote
employment will most certainly become the new standard in the future. It's a fantastic chance
for businesses to rethink their real estate needs. Furthermore, they must now reconsider the
amount of room they require.
The savings will most likely come from both the reduction in space and the reduction in
overhead expenditures. The cost of electricity, water, food, connectivity, uniforms, and
washing will all be reduced significantly when the number of workers in the office decreases.
The list could go on indefinitely. Companies with multiple branches and regional offices may
elect to consolidate some of these divisions and instead use digital capabilities to increase
their influence. Because virtual official meetings have been successful in the past, the
demand for meeting spaces in corporate headquarters can be reduced even further.
Employees will have more flexibility to work, uninterrupted and in a pleasant environment,
while yet achieving the same results. While the company saves money on space and
overhead, the employee saves time and money on travel. It's true.
Many organizations already have a system in place that allows salespeople to carry a virtual
office on their devices and receive quick leads on real-time prospects. Such technologies can
be used to improve adaptation following a pandemic, and the distributor can control the full
sales cycle digitally. The need for a physical office will be greatly reduced as a result of this.
This does not necessitate a significant investment. What is necessary, however, is a well-
thought-out and simple-to-use digital platform, as well as good network connectivity and a
collaboration platform. In this context, artificial intelligence and machine learning are going
to be game-changers. Such technologies could have been imagined during the next seven or
eight years even if the epidemic had not occurred. COVID-19 has given the organizations a
push to get things done immediately if they want to stay alive. Those that seize the
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National Institute of Construction Management and Research, Hyderabad

opportunity will have an advantage over their competitors. In some ways, the virus acts as a
leveller, as it does not discriminate between large and small firms. However, we are fortunate
to live in an era when technology can save the day. This is a disruption that has been
discussed for some time, but it must be accepted if enterprises are to avoid an existential
crisis.
2. Impact of Covid on Real-estate

The impact of COVID-19 on Indian real estate has been extraordinary, as evidenced by the
fact that the industry has lost over Rs 1 lakh crore since the epidemic broke out (Source:
KPMG). The epidemic, according to the research, caused a major financial constraint for real
estate developers. The loan crunch reduced residential sales in India's top seven cities from
four lakh units in 2019-20 to 2.8 lakh units in 2020-21. According to a survey by India
Ratings (Ind-Ra), overall residential demand fell by more than 40% in the first half of FY21.
Sales are expected to be restricted until the COVID-19 situation is effectively managed,
according to the agency. However, between January and June 2021, the number of new
projects launches in India surged by 71%. (Image courtesy of Knight Frank.) Stamp duty
reductions in many states are to blame for the increase in new launches.

Because of the limited movement and cautious buyer mentality, there was an extraordinary
surge in unsold inventory. According to a Liases Foras analysis, the COVID-19-led lockdown
resulted in an increase in unsold inventory from over 15 quarters at the end of FY-20 to over
19 quarters by the end of H1 FY21. Abysmally poor sales in Q1 aggravated the unsold stock,
dampening recovery in Q2 2020.

3. Rates of property in eight residential markets

According to data accessible on PropTiger.com, the average value of homes in India's eight
top residential markets increased somewhat during the April-June 2021 period. While certain
cities, like as Hyderabad and Ahmedabad, have witnessed a 5% increase in new apartment
pricing compared to the same period in 2020, other cities have seen far lesser increases. With
the exception of the Mumbai Metropolitan Region, prices have risen marginally during a
period when the second wave of the Coronavirus pandemic wreaked havoc on the economy.
Demand and supply were both hit hard during the first two months of Q2 CY 2021, when
most states implemented fragmented lockdowns to stop the virus from spreading. However,
throughout the month of June, when states began to open up, some ground was covered on

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both indices. The same can be seen in the Q2 demand and supply figures. In the coming
quarters, we expect both of these indices of real estate health to improve.
City Average price as on june 30 Annual growth in %
2021(in Rs. Per sq ft)

Ahmedabad 3,251 5

Bangalore 5,495 4

Chennai 5,308 3

Hyderabad 5,790 5

Kolkata 4,251 2

NCR 4,337 2

Pune 5,083 3

National average 6,234 3

Table1: Rates of properties in different market

Avg Total price Loan Total
EMI to %
City price/ for sanctioned rental
be paid Savings
Sqft purchase by banks amount

Ahmedabad ₹ 3,251 ₹ 4,291,320 ₹ 3,433,056 ₹ 26,308 ₹ 23,000 13%

Bangalore ₹ 5,495 ₹ 7,253,400 ₹ 5,802,720 ₹ 44,467 ₹ 40,000 10%

Chennai ₹ 5,308 ₹ 7,006,560 ₹ 5,605,248 ₹ 42,954 ₹ 30,000 30%

Hyderabad ₹ 5,790 ₹ 7,642,800 ₹ 6,114,240 ₹ 46,855 ₹ 22,000 53%

Kolkata ₹ 4,251 ₹ 5,611,320 ₹ 4,489,056 ₹ 34,301 ₹ 28,000 18%

NCR ₹ 4,337 ₹ 5,724,840 ₹ 4,579,872 ₹ 35,097 ₹ 36,000 -3%

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National Institute of Construction Management and Research, Hyderabad

Pune ₹ 5,038 ₹ 6,650,160 ₹ 5,320,128 ₹ 40,769 ₹ 30,000 26%

Table 2: Comparision between rentals and purchases

From the above table we can see that rentals are less compared to purchases in few cities, but
in long run it is better to purchase homes which in future becomes economical by
overcoming the rental charges.
4. Factors influencing buyers to purchase properties in 2020
1. The rise of work from home model
With the outset of the lockdown in India, nearly 90% of India's 4.3 million IT
workforce began working from home. The majority of other industries followed suit.
According to Stanford Professor Nicholas Bloom, productivity has improved by
nearly 13% in the last ten months. Despite a slew of issues, businesses in India have
realised that this is the new normal. As a result, more organisations are adopting a
permanent work-from-home strategy or a hybrid approach. This is one of the
important factor influencing people to buy new and decent homes.
2. Home loan intrest rate cuts in 2020
Since the Reserve Bank of India cut the repo rate to 4%, banks have lowered home
loan interest rates below 7%. For instance, State Bank of India offers 6.95 percent
house loans, whereas HDFC offers 6.90 percent. Bank of Baroda is now offering
loans at a rate of 6.85 percent. The reduction in rates is a welcome difference from
previous years, when it ranged from 8.50 percent to 10.50 percent.
3. Stamp duty reduction
A limited period stamp duty reduction in many states like Maharashtra and Karnataka,
has helped win over fence-sitting buyers. The Housing Ministry has urged all states to
lower stamp duty charges. A few states have implemented it and a slight surge in
enquiries and high-intent demand has been visible.
4. Affordable housing in 2020-21
Unaffordability was one of the major factors that led to more individuals choosing
2BHKs over 3BHKs in the past. For many people, owning a home in a big city was a
pipe dream. With the Pradhan Mantri Awas Yojana (PMAY) initiative, many first-
time home purchasers with yearly incomes of up to Rs 18 lakhs were able to realise
their ambition of owning a home. The benefit of the additional deduction of up to Rs

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1.50 lakhs for interest paid on loans for affordable dwellings was extended by one
year in Budget 2020, till March 31, 2021.
The RBI has also injected Rs 3.74 lakh crores of liquidity into the economy during the
last few months, and the Credit-Linked Subsidy Scheme (CLSS) has been extended.
While the unprecedented repo rate decrease has been the most beneficial, resulting in
house loan interest rates below 7%, the reality cannot be denied. COVID-19 and its
aftermath were turned into an opportunity by the inexpensive housing segment, which
has the highest demand from the Indian middle class.
5. Rental yield in top cities after COVID-19
After pandemic, for recovering the losses inccured due to covid-19, the rentals have
significantly increased by 4%-8%. Whereas bank loans offered after pandemic were
very low which majorly influenced the buyers to buy new homes rather than renting
them.

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National Institute of Construction Management and Research, Hyderabad

Conclusion

1. Purchases are seen significantly increasing in post covid time, increase in rentals have
also played a important role for buyers to buy new properties.
2. Home buyers are expecting more features that rental homes may not provide, as many
have shifted to work from home mode.
3. Decrease in stamp duty charges, also played a role in buying homes near places like
karnataka and maharastra.
4. Affordable housing schemes have aslo played a mjor role in influencing buyers to buy
homes.
5. Reduction in bank intrests from many banks have influenced buyers to move into new
homes.
6. Overall the statistics taken in this study may show rentals are lower than purchases
but in longrun purchases are better than rentals.
7. Overall this pandemic have helped many people to choose homes rather than renting
one.

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National Institute of Construction Management and Research, Hyderabad

References

1. India Real Estate: Challenges and Opportunities presented by COVID-19 - II

2. By Shwetha Pai and Venkatesh Panchapagesan.
3. Impact of Coronavirus on Indian real estate by Sunita Mishra.
4. The best and worst of 2020, for Indian real estate by Sneha Sharon Mammen.
5. COVID-19 impact on rentals: Investment properties to witness correction by Sunita
Mishra.