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Effects of COVID-19 in the real estate sector

Authored By- Simran Garg

Keywords- #COVID19 #Economy #housing #real_estate #GST #INDIA #RERA


Historical experience has repeatedly proved that if economic development relies too heavily on land and land prices still rise rapidly and rapidly, it'll affect enterprises’ investment, production efficiency, and innovation ability, which can affect the steady and healthy development of enterprises. The increase of house prices has adverse effects on the event of non-real estate enterprises like cost effect, investment transfer effect, and credit effect but the important estate sector has suffered a severe setback thanks to the Covid-19 crisis. The Coronavirus spread has further delayed a recovery which may have seemed possible due to various government launched measures to revive demand though immediately it doesn’t appear to price will go down immediately.


The real estate sector is one among the foremost globally recognized sectors. It comprises of 4 sub-sectors - housing, retail, hospitality, and commercial. The expansion of this sector is well complemented by the expansion within the corporate environment and therefore the demand for office space also as urban and semi-urban accommodations. The development industry ranks third among the 14 major sectors in terms of direct, indirect, and induced effects altogether sectors of the economy. Real estate is one among the important production factors of commercial enterprises. The increase of house price increases the value of rent or purchase, causes the worth of land and building materials to rise, increasing the value of plant construction and increasing the value of commercial enterprises. On the one hand, rising house prices raise the rent for industrial enterprises and increase the assembly and distribution costs of commercial products. On the opposite hand, rising house prices increase the value of living within the labor pool, leading to higher wages. Rising house prices cause the price of land to extend.

Property prices in Indian markets have gone way beyond the buying capacity of the commoner. Until 2016, taxes accounted for nearly 25-30% of the entire cost of a property. With the products and repair Tax (GST), the tax on under-construction properties has come right down to 12%. However, the stamp tax and registration charges aren't subsumed into GST.

“The additional burden on the sector on account of the stamp duty averages 5%-7%. If the state governments abolish the same or merge with the existing GST rates, it will help bring down the cost of properties .” [1]

In theory, rising house prices change the price-ratio relationship between land and other goods and factors, increase this value of the land stock, expand the cash supply and cause changes within the relative profit levels of the industries which have different degrees of reference to land. It will cause a price effect, investment transfer effect, correlation effect, financing effect, and distribution effect on industrial sectors.


In general, rising house prices have both positive and negative impacts on the innovation and investment of non-real estate enterprises. On the one hand, the important estate bubbles raise the house prices, and increase the worth of land, building and other resources owned by the enterprises, which can alleviate the financing constraints of enterprises, thus facilitating the innovation investment (credit mitigation effect) of enterprises. On the opposite hand, the important estate bubbles also increase the return on investment of the important estate industry, resulting an investment shift from industrial enterprises to the important estate. Because of the financing constraint, the innovation investment of commercial enterprises is restrained (investment crowding-out effect).

Housing prices won't only affect the investment behavior of enterprises, but also further affect the productivity of enterprises output.


India's property sector has been hit hard by the coronavirus pandemic. Work on projects that were under development was suddenly forced to stop as the nationwide lockdown - one of the strictest in the world - came into effect on March 25, 2020 and was eventually extended till June 7, 2020, amid a dramatic rise in the number of infections — worsened the situation in Asia’s third-largest economy. As on June 27, over 5 lakh Coronavirus infections were reported in India. Presently India reports over 11, 55,000 coronavirus cases.

While the adverse effects of the pandemic is already being felt across the world, varying opinions are emerging on COVID-19’s impact on the real estate sector, a health emergency that has force-launched the most important ever work-from-home experiment globally, putting an issue mark on the relevance of workspaces during a post-Corona virus world. Companies worldwide have announced remote working for employees to contain the virus spread, triggering a debate if work-from-home could replace office spaces in the future. While the answer to that question depends on the ultimate level of success achieved by businesses through remote working, a near-term jolt to the commercial real estate in India is unavoidable. It is evident; research agencies are predicting a near-term halt in the growth of real estate in India.

“The lockdown, which has virtually brought to a standstill most economic activity in the country, has hurt all sectors, including real estate. The adverse impact of the Coronavirus is visible on housing sales in the last quarter of the last fiscal because March is usually one of the biggest months for sales ”. [2]

The demand slowdown within the residential segment has already curtailed housing sales, project launches and price growth in India’s residential realty sector, which

has been reeling under the pressure caused by mega regulatory changes caused by the Real Estate Regulatory Authority (RERA), the Goods and Services Tax (GST), demonetization and the Benami property law. The fact that businesses would scale down their workforce would also force many prospective buyers to wait for clarity on their job security, before making a final decision on property purchase.

Even though the RBI has announced several rate cuts, bringing the repo rate down to 4%, any positive effect of the move on buyer sentiment would be seen only in the medium to long term. The step, however, would come as major support for existing buyers, who might struggle to pay EMIs in the short-term or medium-term, because of the lockdown or in the event of job loss.

“Due to the lockdown announced on account of the COVID-19 outbreak, both, construction and sales activity have come to a complete halt across the entire real estate sector. On several sites, construction workers, too, have gone back to their home towns. Even after the lockdown, the activity will only recommence gradually, which will cause project delays of anywhere between 4 to 6 months at the least ,”

According to property consulting firm Savills India, the supply of new warehousing space in 2020 could be only 12 million sq ft as against the earlier projection of 45 million sq ft. However, as the demand grows in the long term, a significant capacity increase could be expected in 30-35 new tier-2 and tier-3 cities. However, the pandemic has also made buyers realize the worth of homeownership, thus, giving a sold sentiment boost to residential land.

On the assumption that e-commerce will grow significantly in the post-COVID-19 world, there have been projections that the warehousing sector in India would stand to gain immensely. More importantly, this growth will not be limited only to the big cities but it will be spread across smaller cities, as well. Countries applying extreme measures to contain the Coronavirus outbreak, businesses have come to a grinding halt across the world, forcing monetary agencies to slash growth forecasts for the global economy, India included. Projections by the International Monetary Fund (IMF) say India is headed towards historic contraction of 4.5% in FY21 as severe fallout of the pandemic India, where the economic growth is already set to slow down to a record 11-year-low, a prolonged lockdown.

“Salvaging Indian realty, the second-largest employment generator is critical, not only from the GDP growth perspective but also for employment generation, since the sector has a multiplier effect on 250-plus allied industries .”

In recent weeks, the measures have eased allowing some construction activity to resume in parts of the country. But demand for both residential and commercial property in India remains weak.


With the unhidden scenario and everyday losses in every field of business, it becomes difficult to control the downfall of decreasing demands of properties, while the real extent of the damage is tough to understand during a scenario where a day is making an excellent difference, one thing is surely – India’s realty would suffer short-term shocks on account of the contagion.

[1] Surendra Hiranandani, CMD, House of Hiranandani.

[2] Dhruv Agarwala, Group CEO,,, and