Real Estate Sector to Bounce Back in Tier II & III Post COVID-19

With recently issued Unlock 4.0 guidelines, it would be interesting to look at how the real estate market will bounce back. Realtors are optimistic about the recovery scenario in tier II and tier III cities especially after a report by KPMG ‘Time To Open My Wallet Or Not’, which says that 22% consumers in Tier-II and 30% consumers in Tier-III cities felt that their spending would either increase or remain the same as before COVID-19.

“If one takes inflation into account, fixed deposits are yielding a negative rate of return currently. The equity market is way too volatile and even the RBI Governor has recently warned about a possible correction as it is way too ahead of the fundamentals.

Considering these aspects real estate is being seen by many as an attractive investment option. According to a recent survey conducted by Housing.com in association with NAREDCO around 35% of the participants consider real estate as one of the best investment options with 28% opting for gold.

Lower interest rate along with stable prices also works in favour of the sector. As tier II and III cities have witnessed rapid infrastructure development and are also emerging as new employment hubs.

With the Government’s focus on encouraging self-employment, these cities are also witnessing a kind of reverse migration and hence, it is expected that the demand for properties is likely to improve soon. The upcoming festive season could be the biggest trigger towards the same.”, said Mani Rangarajan, Group COO, Housing.com, Makaan.com & PropTiger.com.

There is no denying the fact that the impact of spread has been higher in metros than Tier II and Tier III cities. Therefore, upon unlocking, these cities witnessed favourably well consumer interest and willingness to spend.

“It is also about moving forward with the digital wave and be prepared for the festive season to come. Business in malls is already touching 30-40% of sales registered in the same period a year ago. Our mall in Dehradun is running a campaign of never seen before offers with the help of various brands. It is time for collaboration, retailers and mall authorities have to work together to drive customers. Organized retail offers more safety to shop and dine in these towns, we must capitalize on it. Facilities like Block & shop, Video calling Shopping are adding value to our retail outlets. The key is to streamline your communication in a targeted way especially in Tier II and Tier III cities for motivating customers to visit the malls and experience the safety measures introduced personally”, said Abhishek Bansal, Executive Director, Pacific Group, who heads the operations of Pacific Malls in Delhi NCR & Dehradun.

Explaining the market sentiment, Mohit Goel, CEO, Omaxe Ltd said, “Being an end-user driven market, the demand has picked up faster in 2/3 cities due to a host of reasons like government’s industry and infrastructure push, corporates looking for cheap real estate and skilled workforce that are staying back or returning and higher capital appreciation. Demand in cities like Indore, Lucknow, New Chandigarh, Ludhiana, Faridabad etc. is gravitating towards reputed developers — those with a strong balance sheet and good delivery record.”

The retail and entertainment avenues in Tier II-III market are scattered, malls bring the luxury and convenience for customers to check out everything under one roof. Uddhav Poddar, MD, Bhumika Group, who is spearheading the development for one of the largest malls in Udaipur- Urban Square, said, “The residential and commercial real estate avenues in Tier II-III market are scattered, on the other hand, commercial complexes and modern housing societies combine the values of urban lifestyle and convenience into one. Even for mall developers, the advantage remains, customers have the freedom to discover anything and everything under one roof. Mall authorities and developers presently are working relentlessly to ensure stern safety and hygiene measures even while they are in their construction phase. This trend will continue, efforts will be directed to create a haven for attracting customers and assuring them of their well-being all-time in these newly developed structures.”

Raman Gupta, Director — Branding & Construction, GBP Group said, “Reverse migration among the working professionals from metros and NRIs will lead to an increase in demand of property in Tier II and tier III cities. Talking especially about the northern region, Tricity and its peripheries are witnessing an upsurge laying the foundation for a market that is going to grow exponentially from here. Also, India is on its path of becoming the manufacturing hub, it will create significant demand for office spaces, business parks, and other commercial complexes in the coming years.”

Ajay Rakheja, Sr. VP-Commercial Real Estate, 360 Realtors said “Social distancing has lead to a fear of going to crowded places and thus consumers prefer to shop online and have compelled brick and mortar retailers to focus on a concrete strategy for Omnichannel Retail. It is imperative for retailers to evaluate the situation prudently in order to tackle the cash flow situation. Indian retail sector is going through an adverse time and the need of the hour is that Government takes certain strong measures to ensure that the retail sector in the country does not go in a state of dormancy. Retail sector is not just one of the biggest sunrise sectors of the country but also creates volumes of jobs”.

Already the sector is witnessing lower revenue and has not seen any benefits coming from the fiscal stimulus packages and now if banks do not extend the moratorium on loans announced in March beyond August 31, then the retail sector will go in the doldrums. And the recovery for the sector will take longer than what is predicted.

The retail sector might see some recovery from the Q4 2020 but consumer sentiments in post-pandemic times will remain largely muted and some categories like luxury, travel, hospitality, movies, fine dine, white goods, expensive gadgets, might see a drop.

“Barring few malls (those are part of the big conglomerates), the majority of the mall owners pay their bank loans from the rent that they get, now in a situation where neither the rents will go up and also the occupancy rates are crashing down. Mall owners need to re-evaluate their future strategies. Some Mall owners are pragmatically thinking about their future moves for example developers of under construction malls might scrap the project and might foray in healthcare where they can get better returns as it is the need of the hour” adds Rakheja.