Problems galore for real estate

Labour unavailability and drop in demand for property impacted projects and market

By   |  Published: 18th Jul 2020  12:10 amUpdated: 17th Jul 2020  7:25 pm

Hyderabad: The impact of the coronavirus pandemic induced lockdown on the real estate market can be gauged by the fact that markets like Hyderabad, NCR and Chennai have had near zero sales during April-June. Developers were forced to postpone launches due to labour unavailability and the anticipated drop in demand.

Sales in traditionally end-user markets like Bengaluru and Hyderabad, both mainly driven by the demand from IT and ITeS, fell sharply by 57 per cent and 43 per cent YoY respectively during the first six months of this year. With the Covid-19 crisis, demand would be further severely hit in 2020 due to ensuing income uncertainty and poor consumer sentiments, according to the half-yearly report brought out by real estate consultancy Knight Frank.

The near-term outlook on sales remains bleak and depends completely on how the pandemic impacts the economy in the second half of the year, it said.

According to Samon Arthur, Branch Director-Hyderabad, Knight Frank India, sale of units priced below Rs 50 lakh, where the demand is normally concentrated, has seen a fall mainly due to the financial uncertainty. The office market, which has been the best performing real estate property type, has hit a major roadblock this year as some corporates are re-exploring their office space requirement. About 6.3 mn sqft of office space was surrendered by occupiers in the top eight cities, including Hyderabad back to the landlords due to tight cash flows.

Micro markets

West Hyderabad, by virtue of being the centre stage of office activity, saw maximum launches. The northern parts towards Kompally and eastern parts towards Uppal, too, have seen new launches. Manikonda, Kompally, Kokapet, Narsingi and Serilingampally have seen more construction activity in recent times.

Tough phase

Market uncertainties have made home-buyers more risk averse. Banks and financial institutions have tightened lending norms forcing many to postpone or cancel purchase decisions. In 2019, the city recorded an all-time high of 12.8 mn sq ft in office transactions which was the second highest amongst the top eight cities in the country. After the record high 6.9 mn sq ft from July to December of 2019, Hyderabad saw only 2.2 mn sq ft of transaction activity, a fall of 43 per cent on a yearly basis.

Many occupiers have put their consolidation plans and deferred decisions on hiring. The pandemic-led anxiety prompted lease renegotiations, rent waiver requests and rent deferment discussions. Commercial real estate strategies and office space demand will be governed by remote working, resetting the workplace and hygiene standards of the building premises.

“The construction industry is dependent on migrant labour. Now, most of them have gone back. This shortage will result in delays. The buyer sentiment is down due to job losses and salary cuts. Developers have to face the financial burden to pay salaries, interest on loans, idle charges and rentals for equipment,” said G Ram Reddy, chairman and managing director, ARK Group.

New norms

De-densification will be key. Driven by space optimisation and cost savings on real estate, many companies, mainly in the IT sector, had rationalised workspace per employee to nearly 80 sq ft in the past few years. This defied the age-old norm of 100 sq ft space per employee. De-densificatl also require allowing part of the workforce to stay out of office — either continue working from home or operate out of co-working spaces or work in shifts on a rotational basis, said Arthur. Reconfiguring the existing spaces might be needed. Many built-to-suit campuses and global-in house centres have allocated larger square footage of the office premises to amenities. Now, companies will have to think about reorganising some of these spaces to maintain social distancing. Hot-desking may have to be relooked at while cafeterias and office gyms will have to remain closed. Companies may have to create physically distant workstations when 75-100 per cent of workforce returns, the consultancy said.