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July 28, 2023

Real Estate Sector Facing Major Challenges Amidst the Pandemic

The real estate sector has been facing numerous challenges for the past few years, and the COVID-19 pandemic has only intensified these difficulties. Even before the pandemic hit, the real estate sector was grappling with issues such as a massive debt burden, unsold inventory, and declining investor confidence. However, the lockdown imposed to contain the spread of the virus has further worsened the situation for real estate developers.

In the first quarter of 2020, around 78,000 ready-to-move homes, worth Rs 65,950 crore, remained unsold. This accounts for 12% of the total 6.44 lakh units in all cities. Faced with such staggering numbers, real estate developers have been forced to delay new project launches as the sentiment among homebuyers has been severely impacted by the pandemic.

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Moreover, the government’s request to reduce property prices to clear the existing inventory has added to the woes of real estate developers. Lowering prices may provide some temporary relief, but it can harm the reputation and long-term prospects of real estate players. Additionally, the real estate sector is heavily taxed, with around 35-40% of apartment values consisting of direct and indirect taxes. Therefore, reducing prices would impose a significant financial burden on developers.

Despite these challenges, there is still hope for the real estate sector. The lockdown and the increasing trend of working from home have prompted many individuals to look for spacious and affordable homes. People residing in rented apartments or small houses are now seeking bigger homes in larger societies that offer various amenities for a healthy and hygienic lifestyle. The need for a separate room for a home office has also driven demand for larger spaces.

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The Rise of Affordable Housing and Digital Transformation

The pandemic has created an uncertain economic environment where people are focused on saving money and prioritizing essential needs. This has fueled a surge in demand for affordable housing. With low home loan rates and the deferment of loan moratoriums, homebuyers are eagerly searching for affordable homes.

To seize this opportunity, real estate developers must sell their existing inventory and generate fresh liquidity to stabilize their balance sheets. Affordable housing has become the most essential item for people, and they are actively seeking ready-to-move or under-construction homes. By including an affordable housing segment in their projects, developers can stimulate the real estate sector and contribute to the overall economy.

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Furthermore, real estate developers must embrace digital transformation to meet the growing demand for affordable homes. The adoption of digital tools and technologies, such as virtual home visits, 3D walkthroughs, secure payment gateways, and digital signatures, can make the homebuying process easier, faster, and more secure. With homebuyers increasingly relying on digital channels to search for properties, developers must proactively incorporate digital real estate tools into their operations.

While the challenges faced by the real estate sector are undeniably daunting, the adoption of affordable housing strategies and digital frameworks can help real estate developers overcome these obstacles and navigate through these uncertain times. By aligning their business models with shifting market demands and leveraging technology, developers can revive their fortunes and ensure long-term success in the real estate sector.

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FAQs

Q1. How has the pandemic affected the real estate sector?

The pandemic has exacerbated the challenges already faced by the real estate sector, including a high debt burden, unsold inventory, and declining investor confidence. The lockdown restrictions have further delayed new project launches and hurt the sentiment among homebuyers.

Q2. Why are real estate developers reluctant to reduce property prices?

The real estate sector is heavily taxed, with a significant portion of apartment values consisting of direct and indirect taxes. Therefore, reducing property prices would impose a substantial financial burden on developers and may harm their long-term prospects.

Q3. What is driving the demand for affordable housing?

The pandemic has created an uncertain economic environment, leading people to prioritize essential needs and seek opportunities for saving money. This has resulted in increased demand for affordable housing as individuals look for cost-effective options in the real estate market.

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Q4. How can real estate developers capitalize on the demand for affordable housing?

Real estate developers can sell off their existing inventory of affordable homes and invest in fresh projects to generate liquidity and stabilize their balance sheets. By catering to the demand for affordable housing, developers can stimulate the real estate sector and contribute to economic recovery.

Q5. What are the benefits of embracing digital tools in the real estate sector?

Embracing digital tools, such as virtual home visits, 3D walkthroughs, secure payment gateways, and digital signatures, can make the homebuying process more convenient, efficient, and secure. Digital transformation allows developers to meet the evolving needs of homebuyers and enhance their overall buying experience.

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Q6. How can real estate developers adapt to the changing market demands?

Real estate developers must adjust their business models to align with market demands by focusing on affordable housing segments and incorporating digital tools and technologies. By understanding and meeting the needs of homebuyers, developers can thrive in a rapidly changing real estate landscape.

Q7. What is the outlook for the real estate sector?

While the challenges faced by the real estate sector are significant, the adoption of affordable housing strategies and digital frameworks can provide opportunities for growth and revival. By leveraging these strategies, real estate developers can overcome obstacles and ensure long-term success in the post-pandemic era.

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Overall, the real estate sector has been hit hard by the pandemic, but there are signs of hope. By focusing on affordable housing, embracing digital transformation, and adapting to changing market demands, real estate developers can navigate through these challenging times and emerge stronger than ever.

So, if you’re a developer looking to make a mark in the real estate sector, now is the time to reassess your strategies, prioritize affordability, and leverage technology for success. Together, we can overcome these challenges and build a brighter future for the real estate sector.

 

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