How safe is it to launch new projects in 2021?
The first wave of COVID was detrimental to industries across sectors, real estate being one of them. However, with innovative ideas and once in a lifetime offers, the real-estate industry was able to survive during the first phase of COVID, with a marginal decline of 15 to 20 percent. While the second wave of COVID is still going on at an abating rate, the second wave also affected the entire cycle of the real estate business. According to our estimates in Delhi/NCR only the sales are affected by almost 25 percent than the previous year's levels. The overall decline in housing sales is between anywhere 40-60 percent in different states, as they are still struggling to open up from the lockdown. The launches have dropped by close to half in the last whole year. However, if the second wave continues to decline, and the vaccination drive becomes a success, the housing sector is expected to come back with a bang at a good recovery rate. Developers will look at pushing the unsold inventories and lucrative schemes and offers will be presented to customers. The festive season is being looked forward to, with great enthusiasm and it is expected that sales will accelerate at a fast pace during the festive months. The only question lies if developers can and should launch new projects this year or focus majorly on clearing up the inventories. In the ideal situation, developers should look at selling off their ready or near complete projects. This is extremely important to generate liquidity and clear off the stalled projects which have been suffering since the first wave of COVID. However, developers might not have too many options in the current scenario, than launching new projects too. They have been sitting on the land accumulated for the last 20 years or so and the land prices have been declining in the last one year. Though the land bank with them is generally used to launch projects, but the notional value of the asset in their books is declining, which is alarming situation. If the developers do not start launching new projects in those lands, the prices might decline further and they might not be able to monetize their assets. Developers will not be in a position to hold land because of the running cost involved. Hence, they have to launch new projects to monetize the land. The property stocks have seen a constant upward trend, despite lower sales. It is one of the indicators that the sector may see a turnaround after an almost constant struggle. With the declining new inventory, the new launches are likely to build up by the end of this year and are the way forward for the developers to generate interest from investors. The real-estate sector has seen some new launches in the first quarter of this year and the momentum is going to increase in coming quarters. In the quarter of January- March, 2021, around 62,000 new units were also launched across the top seven cities (As per industry reports). There has been a change in consumer behaviour, post-Covid which will also work for developers in selling off the newly launched projects. There has been an increase in demand for low-cost housing projects from millennials and migrant section of society. Home ownership has become a top priority for this section, especially after the pandemic. This has helped a lot in bridging the demand supply gap in the industry. This has also been one of the main reasons why housing real estate continued with its sales momentum, despite the pandemic. The author, Sunny Katyal is Co-Founder at Investors Clinic. The views expressed are personal