Second wave of COVID 19 drives down real estate sentiment: Knight Frank

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The second COVID-19 wave, more furious than the first that paralysed the economy, has driven down the future sentiment in the real estate sector in the first quarter of calendar year 2021, the year when experts hoped for the economy to rebound, said a report of Knight Frank, a global major in real estate consultancy.

The report released on Thursday said the sentiment score dipped from 65 in Q4 2020 to 57 in Q1 2021.

The Future Sentiment score for the next six months of stakeholders has fallen across regions, even while it remains in the optimistic zone, said the company.

Survey of 148 builders, investors

The survey was concluded on April 12, when the indications of the second wave were clear from rising numbers and severely stretched healthcare infrastructure.

As many as 148 respondents, a mix of builders and investors, took part in the survey. Therefore, the survey essentially gave a picture of the supply side.

Though the residential launches and sales softened in Q1 2021, more than 80% of the respondents in the survey expected the residential market to grow or remain steady in the next six months across prices.

Residential sector

Around 65% of the respondents felt that residential launches will increase in the next six months, while only 26% thought that new project launches would remain the same in that period.

With regards to prices of residential properties, 48% of the respondents in Q1 2021 – up from 38% in Q4 2020 – said that prices will increase in the next six months. 43% thought prices would remain the same.

However, some also interpreted it as an opportunity. Reacting to the report, Ram Raheja, director of S Raheja Realty said, “As we learn to co-exist with COVID, people who were comfortable with the rental concept are now driven towards owning their own home, primarily for the sense of security that it brings along…Keeping in mind the current scenario, realty prices could see a sudden, sharp surge in the coming 1-3 years, before it settles down on a higher plane.”

Office occupancy hit

The restrictions enforced in some states and cities have adversely affected office occupancy levels. The fast-spreading infection has also dimmed the outlook on office market.

The weakening of some key indicators in the macro economy such as Index of Industrial production (that contracted 3.6% in February 2021 compared to February 2020) also dampened stakeholder outlook, found the survey.

Credit availability

On the credit availability front, extremely crucial to the sale of real estate, the stakeholder outlook shifted from positive to observant. In Q1 2021 81% respondents said they expect “the funding scenario to either improve or to remain the same for the coming six months”. In Q4 2020, this share was 87%.

“Economy’s return to normalcy will depend on the pace of vaccination and the time taken to control the second wave of COVID. Apart from the pace of vaccination, government decisions on lockdown restrictions will largely determine the performance of real estate sector in the coming months,” said Rajani Sinha, chief economist of Knight Frank.