A veteran cross industry specialist with over two decades of experience, Sandeep Singh Katiyar has performed leadership roles across a wide array of sectors including finance and real estate. As CEO of 1 OAK real estate, Sandeep is responsible for formulating corporate strategy and management and overseeing the company’s growth and diversification plans.
From changing the way we work and buy to unleashing major shifts in the job market, the COVID 19 pandemic has brought about significant behavioral changes as well as long-term transitions in the economy. The real estate sector, which was one of the worst hit segments in the immediate aftermath of the pandemic. With COVID 19 halting construction as well as buying decisions, a report by KPMG last year had pegged the losses to the real estate sector at Rs 1 lakh crore for the FY 20-21. The lockdowns, pay deferments and increasing opportunities for remote working in the aftermath of a recessionary phase has resulted in significant contraction of residential sales in top tier cities. However, as sales contracted in top tier cities, a shift towards increasing demand in tier II and tier III cities has been observed in recent months. The economic and behavioral changes spawned by the COVID crisis are playing a major role in scripting the evolution of the post pandemic real estate market.
Looking back into the Pre-Covid era, we were already witnessing a change in the real estate demand patterns in the tier 2 & Tier 3 cities of India on back of the changing economic activities. This trend was strengthened by the improving connectivity and infrastructures. With multiple flights connecting these cities & digital infrastructure improving rapidly, several IT & ITeS companies had already started to set up their base. The consumer services companies had started to make inroads to exploit the untapped consumer demand. The increased job opportunities coupled with the lower cost of living had already led many to start shifting their bases away from over-crowded metropolitan cities. Several top-tier developers had already launched international quality lifestyle residential projects to cater to the changing demand patterns. The government’s infrastructure focused schemes like AMRUT and Smart City projects have also helped in developing world class infrastructure in these cities.
Post Covid Surge: Behavioral & Economic Changes
In the post pandemic era, the real estate demand in the tier 2 & tier 3 cities has propelled further. The key factors for this surge can be attributed to the lifestyle changing factors as well as positive externalities created by the steps taken by the policy makers.
The requirements for social distancing post lockdown culminated into the remote working norm and push for ‘work from home’ culture. A lot many companies – having experimented the remote working arrangements, though forced, have been offering their employees either a permanent work-from-home or flexi-work option. There is also a noticeable rise in their hiring of part-time ‘gig’ workers for short duration tenures, further accentuating the remote working phenomenon.
In light of this flexi-work option available & being holed in the smaller apartment of the metro cities, many employees have started to shift their bases to tier-II and tier-III cities where the cost of real estate is lesser. This is giving them an opportunity to live in larger spaces with similar or sometimes even better lifestyle residences. The emergence of better health and education institutions in these cities is further aiding their decision.
Interestingly, many businesses and industrial houses are also shifting their operations to tier-II and tier-III cities in the post pandemic world. Retail giants are establishing warehousing facilities for better last mile connectivity in smaller towns. Several BPOs and ITeS companies are also establishing offices in smaller towns as it helps them reduce business costs while giving them access to a large talent pool. This has created more employment opportunity, locally boosting the demand for housing needs.
Even for the natives of these tier-II and tier-III, pandemic has exposed their need for a lifestyle product. Stuck in their older societies and stand along homes which had little or no common infrastructure – the demand for units in bigger township developments has surged.
While there are lifestyle factors influencing the decision making to shift bases to smaller cities in search for a better quality lifestyle at reasonable prices, the demand for housing projects has been fueled further by enabling policies – most notably the lowering of interest on housing loans and reduction in circle rates and stamp duty across many states. The Reserve Bank of India (RBI) initiated two consecutive repo rate cuts between March and May last year in a bid to enable banks pass on rate cut benefits to consumers and induce greater demand in the economy. This has helped banks offer housing loans at lower interest rates. Currently the interest rate on home loans is as low as 6.65%.
These changes in the macroeconomic in the post lockdown period has helped convert many latent buyers into active ones. The trend is reflected in increased demand for purchase of residential properties in smaller towns and a rebound in real estate sales. A recent survey by NoBroker.com titled ‘India Real Estate Report 2020’ shows 82 percent of respondents plan to purchase a property in 2021. A recent survey conducted by real estate consultant Anarock pointed at a surge in demand for rental housing and purchase in tier-II cities. Clearly, cities such as Lucknow, Indore, Chandigarh, Kochi, Coimbatore, Jaipur and Ahmedabad are emerging as preferred destinations.
Road Ahead in 2021
After a turbulent year the prospects in 2021 look better for Indian realty sector, which is the second largest employment generator. While buying decisions were put off last year, there is a growing sentiment for home ownership among buyers in the post pandemic phase. Also the Govt. has set up Rs 25,000-crore stress fund for stuck projects. A positive buyer sentiment along with favorable policy decisions indicate better prospects for Indian realty sector in coming days – specially driven by the demand pull factors in tier-II and tier-III cities.