COVID-19 impact: Millennials now considering property ownership seriously
A liquidity crisis may well be cited as the single-biggest problem India’s residential real estate sector currently faces. However, it would be a big mistake to look at the worrisome state of affairs as a financial issue alone. Overlooking certain psychological factors that have contributed significantly to the current crisis would be trying to wish away the elephant in the room.
Fear factor and India’s residential real estate
Humans are biologically programmed to go into a fight-or-flight mode as soon as they sense fear. The choice between staying and taking on an adversary or to run for our lives is oftentimes made in a split second, as we reflexively gauge our ability to counter the looming danger.
It is this sentiment that has primarily been responsible for the slowdown in India’s residential real estate sector. The global coronavirus crisis and the subsequent lockdowns came only much later to make matters worse.
As project delays became commonplace, starting in 2014 amid rising cases of builders facing financial difficulties, buyers, especially those belonging to the middle class, decided it was better to flee from the market than fight the uncertainties around project deliveries. The fight was just not worth it given many of the buyers were investing their life’s savings into these homes.
It must be pointed out here that it is the middle-class buyer that fuels the overall demand for homes in India, by committing to huge debt for his or her entire working life to afford a house. The mistrust and negative sentiment that arose in the minds of this crucial buyer segment cost the residential real estate sector dearly and most short-term efforts made to bring them back to the market have failed to make much impact.
This is evident from the fact that home sales during the October-December period of 2019-- the festive season which is the busiest time of the year for residential real estate-- declined 30 percent compared to the same period the previous year. Data available with Proptiger show only 64,034 units were sold during the festive season last year in the nine prime residential markets of the country, despite the fact that interest rates were at record low levels and the government had launched several tax-saving measures to promote sales.
Coronavirus and the turn of sentiments
Even as developers worked overtime to think of ways to increase sales, the sudden emergence of the coronavirus crisis threw cold water on those plans. That would, however, be just one way to look at the pandemic and its various effects.
Since spending increasing amounts of time at home has become integral to human safety, home-ownership is already being viewed differently in a world crippled by the deadly virus. The virus-induced fears in the human mind have forced us to acknowledge the fact that our homes are our ultimate safe havens.
The changing buyer sentiment
In a survey conducted by Housing.com in collaboration with NAREDCO, 53 percent respondents said they have put their plans to buy a property on hold for six months and plan to return to the market after that. Nearly 33 percent respondents in the survey also said they would have to upgrade their homes in order to work from home.
Despite the time of doldrums, the residential sector might have been through over the past few years, its sentimental value has bounced back in the wake of COVID-19, with 35 percent respondents in the survey saying this was their preferred investment class.
The virus spread has made Generation Rent, which primarily has a no-strings-attached approach towards asset ownership, rethink its strategy as well. Currently, nearly 40 percent of India’s millennial workforce comprises migrants are looking for affordable yet modern living spaces that provide them with an optimal mix of privacy with an opportunity to engage in social exchange.
Since most of the respondents fall in the age cohort of 25–35 years, they preferred renting a house for self currently, primarily because of the job profile that does not make it viable to invest in a stationary asset.
In fact, 47 percent respondents in our survey said they would like to invest in property if it was rightly priced. Those renters who are not in a position to buy a house currently because of price issues or the nature of their jobs have also said they would buy a property within two years.
Opportunity to bounce back
The coronavirus tragedy has challenged humanity in multiple ways, but it has also created new opportunities for many businesses. The residential real sector has a real opportunity to spring back towards normalcy, something it has been trying to do unsuccessfully for several years, because of the way people are likely to perceive home-ownership going forward because of the virus.
It is entirely up to us now as to how efficiently we are able to deal with the short term challenges and emerge successfully out of this complex global crisis.
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