IMPACT OF

COVID 19

By:
Shreyash Punnamwar Sarthak Rawat Amit Kumar Dash
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Introduction

Looking at the scenario all over about this pandemic, COVID-19 where suddenly everything has
stopped. It may be any industry, sector, or business, and the impact is immense that none could have
imagined at the beginning of this crisis. It is said that “it is one of the worst epidemics mankind has ever
witnessed” even worse than the great depression (according to the International Monetary Fund). As
the financial year commences, few sources state that it is going to bring great financial disaster in the
coming years affecting majority of the population even after the crisis is over with some major
aftereffects.
According to the latest report “The COVID-19 shock to Developing Countries” by UNCTAD, anticipating
that the Indian economy to be least exposed to the recession. Though, on a preparatory note RBI is
coming up to ensure aid towards few sectors in which the construction industry is one among many.
We have put this paper in answer to the questions about the changes and trying to see the impact and
some remedial measures. What is the period of recovery and some measures? What is the impact on
the Indian Real Estate sector? What are the claims made by some prominent names in the Construction
and Real Estate Industry?
The revenue growth chart is expected to observe low side due to our vulnerability to the pandemic.
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The World Scenario

Today, the world has been hit by a global crisis that is outspread of the virus COVID-19 belonging to
the family of CORONAVIRUS as a result of which the global economy has been negatively affected and
is being forecasted to slow down causing severe socio-economic consequences. Meanwhile economies
like EU, Japan & India were already facing a slowdown, this situation now makes it even more difficult
but as stated by UNCTAD “economic recovery in India will be smoother and faster than many other
countries”. Since, many of the countries have now imposed lockdown, this increases the chances of
global recession significantly. This pandemic has not only impacted the demand severely, but the world
currently is also facing disruptions in the supply chain. Reports by the United Nations have stated an
approximately 1% drop in world GDP for 2020 because of the pandemic. Amidst all the sectors have
been affected, specific sectors like hospitality, aviation, tourism, and real estate sector have been hit
significantly hard. Looking at the global financial crisis of 2008, reviving the market demand is going to
be arduous in the current scenario keeping in mind the steep surge in unemployment with majority of
the businesses lacking liquidity. The unemployment rate has seen a notable rise in the United States
with a huge loss in jobs in the month of March itself. Talking about the developing countries which
have huge unorganized sectors and daily wage laborers, the job loss might impact more grievously.
Majority of the governments have been imposing stern measures to revive their economies. The United
States has reduced the interest rate drastically and has also allocated $ 2.3 trillion in monetary terms,
whereas China has reduced its Reserve Ratio Requirement (RRR) drastically to push liquidity into its
system. On similar lines other economies like South Korea, Australia, Canada & United Kingdom are
also introducing a reduction in policy interest rates (Knight Frank, 2020). Since there has been a large
drop in demand therefore most of the economies are trying to adopt stricter financial measures in
order to cope with this. The United States, Japan, Australia, Canada, and many other economies have
already announced these financial measures and more of such measures are yet to be announced.
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The Indian Scenario

Indian economy though already facing a slowdown before the pandemic hit, is constantly making
efforts to revive the lost market and growth. The growth in the third quarter of FY20 had reduced by a
significant percentage in the past few years. After the introduction of lockdown leading to the
destruction in demand, the GDP is being forecasted to fall further in the FY21. Many of the
organizations have already revised their growth charts to see a downwards slope in India. MSME
sector, which has been one of the major contributors to India’s GDP (with one-third of its contribution)
will see a significant impact due to the current scenario facing a nationwide lockdown. A large
percentage of unorganized businesses have their share in this specific sector in India, this slowdown
will hit the employment in these sectors drastically. The unemployment rate has already seen a rise in
slope from last month and this in turn is sure to impact the investment and consumptions adversely.
(Knight Frank, 2020)

India’s Central Bank has cut the repo rate by 75 bps and injected liquidity to the tune of INR 3.74 trillion
by cutting CRR by 100 bps, providing additional MSF (Marginal Standing Facility) and LTRO (Long-term
Repo Option). It has also announced a moratorium of 3 months for all term loans. As far as fiscal
stimulus is concerned, the Government has announced a package of INR 1.70 trillion, including food
security and direct benefit transfer for the lower-income strata. (Knight Frank, 2020)
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Impact on the Indian Real Estate Sector

The real estate sector in India
has not really been at a very
good confidence level since
2011. It was starting to
retrieve from the monetary
crunch and liquidity damage
in the sector caused due to
the introduction of reforms
like RERA, GST,
demonetization & issues due
to the NBFC crisis. There were also a few measures that were introduced in order to inject confidence
into the sector and give it a boost such as AIF of INR 250 billion to finish the pending projects. Since the
pandemic has hit the world, the Indian real estate sector has been hit severely and the process of its
retrieval has been hampered due to this. All the efforts that were previously made to speed up the RE-
cart, may now witness a derailment.
The nation is observing a nationwide lockdown for over a month now due to which the construction
activities across the nation have been stopped incurring a huge amount of loss. Looking at the
residential sector in specific, it was already going slow adjusting through the structural reforms and
excess inventory in the market with a lack of consumers. But, now it is going to observe an overall drop
in the demand, especially the affordable housing sector since majority of the consumers who fall in the
affordable housing segment will face job losses (unemployment issues) and pay cuts due to this
pandemic. This may also lead to change in the customer-spending-pattern and will thus alter the
demand spending capacity. Thus, to maintain the incoming cash flows and to take the sales graph in
forwarding directions, developers may cut down the prices offering discounts to attract the customers
for a loss during the major festive season when the customers plan on making purchases.
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On the other end, the commercial office sector has been observing significant growth in the past few
years, but the COVID-19 outspread is sure to slow down the sector for the time being. Several
businesses including international and domestic have been acutely affected as a result of which there
will be a halt in any expansion plans for now which will see a drop in the demand for office spaces.
The retail sector has been impacted as well due to the reduction in elective spending and spending
only on the compulsory items. Meanwhile developers are at the risk of facing financial and demand
issues due to the banks and NBFCs risk-averse. This will further increase the stock (unsold) inventory.
The residential real estate sector has observed a relatively low demand as well as the absorption rate
for the Indian scenario in the past few years which can be seen as one of the major factors contributing
to the economic slowdown, the NBFC crisis, and the developer defaults. As a result of which there has
been a large amount of unsold inventory stacked up. Due to the current scenario and pandemic the
residential real estate sector will be hit the most and with the increased risk, the cost of institutional
funding may go up.
Looking at the other impacts on the sector, it may be noticed that since many of the manufacturing
and production units are at a halt, there might be a disruption in the supply chain of raw materials. This
will be a significant impact on material sourcing for the projects. Apart from locally available material,
the industry is also dependent on imported finish items from abroad and different countries in Europe
and Asia which will also be impacted due to the pandemic and the bounce back will also depend on the
fact that how these countries tackle the upcoming ‘recession-like-situation’.
The sudden impact as raised in the sector is the liquidity crisis that the businesses are facing and are
expected to face severely after the pandemic. This will lead to construction delays and disrupt the
various functions in the process. Furthermore, the stress on Housing-loans will increase, thus
worsening the situation for the sector.
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Claims by Organizations
Since the strategic review processes are in place intending to analyze how the real estate use may see
some changes going forward, it has moderated the thought process of landlords to start thinking smart
and ahead of time. The trend has been observing a shift from traditional or customer survey
approaches to sociologists & technologists for answers to the real estate pioneers regarding the
demand for enclosed workspaces for employees. With increasing uncertainties businesses will be
looking out for new methodologies and technical advancements in order to look for new and better
insights.
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Conclusion
If this pandemic prolongs looking at the current scenario, then there is no doubt the business working
in the construction and real estate domain will be hit badly, as it is supposed to be and majorly a labor-
intensive industry. Although the businesses which are E-commerce based could be able to somehow
sustain, which are having the ability to maintain the social distancing as well as the goods or
information to be provided. One such example is that we may see a rise in the precast construction
and aligned businesses, which can provide support and even maintain the required social norm with
the help of different automation and digitalization. The product and the material sector could be dealt
with the help of online platform which would be supportive and help in growing rapidly. Architects and
designers along with the developer need to give a thought of precast construction which is less labor-
intensive and is a speedy construction technique.
Coming towards the Real Estate sector specifically, due to low economic condition as well as the social
distancing, companies from different sectors could go for the co-working spaces, where they can work
in a pattern to utilize their local office with one half of its staff, while the other half in co-working
spaces. Architects need to now design spaces as well as other amenities of the building in the wellbeing
of avoiding the social contact between different ways. Rise of co-working space is no more myth
looking at the current scenario.
As we know labors are being migrated to their respective hometown (native places) because of the
unavailability of work and affecting their livelihood, finding it difficult to sustain themselves in such a
situation. This will give rise to labor shortage in the coming times and requiring additional time and
cost in mobilizing these labor forces once again. This could be mitigated by planning the need and
requirement for the minimum number of skilled/unskilled labor required at the site and sourcing them
locally as per the requirement to tackle the shortage of labor for the time being. During such times
where construction companies might face a shortage of materials, platforms like Build Supply could be
one of the major aggregators giving a good boost to projects in terms of material procurement and
supply chain.
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References

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Authors

❖ Shreyash Punnamwar
B. Arch | MIET, Gondia
MBA – CPM | RICS
e: punnamwarshreyas@gmail.com

❖ Sarthak Rawat
B. Tech – Civil | THDC IHET
MBA – CPM | RICS
e: raw.sarthak.rawat@gmail.com

❖ Amit Kumar Dash

B.Tech – Civil | Amity University
MBA – CPM | RICS
e: amitkdash96@gmail.com