Pandemic after-effects on real estate and stocks.

The outbreak of coronavirus in Wuhan, China and its recent spread in India has impacted the business market severely. The Indian real estate industry has been affected drastically as the new launches are put on hold, construction activities are on halt because many of the heavy materials like steel and other raw materials are mainly dependent on the Chinese market. 

Due to this Pandemic outbreak, the coronavirus has effected 10 lakh individuals all across the world and has claimed around 50000 lives globally. This outbreak has created great uncertainty regarding imports and exports worldwide. The real estate industry has also been badly affected. 

How will coronavirus affect the real estate industry in India?

India imports heavily construction activities like:

  • Iron and steel products
  • Technical construction equipment
  • Electronic equipment
  • Solar panels

China is the largest producer of steel. Although India is the second-largest producer in the steel it heavily depends on China for steel and steel products. With the production in China going down the prices are gradually increased reducing the profit margin of real estate developers in Inda. 

Does the pandemic outbreak bring an opportunity for India in the real estate industry?

The coronavirus outbreak might be an opportunity for Indian businesses to increase their production capacity. The Indian Government is also joining hands by encouraging steel industries to increase production capacity and bring in the opportunity to grab a larger market share. The Ministry of Steel, India is introducing a strategy for producing 10 million tons of special steel at the price of 50,000 crores with 50,000 potential employees. 

Since the Chinese supplies have suddenly taken a change the industry has an opportunity to explore other markets and increase the production capacity by being less dependant on the Chinese imports. This can be an advantage for the production of imported goods such as steel bars, heavy machinery, metal panels, and more. 

How is coronavirus affecting the real estate and commercial industry in India?

Since the real estate industry heavily imports from China and is dependent on them it is affecting vastly. The real estate sector in India is the largest employment generator and seems to have hit another low due to the pandemic globally. However real estate is considered a safer investment considering that the property prices have dipped in many cities. The downfall in the stock market has benefited the real estate industry. 

Impact of coronavirus outbreak on REITs (Real Estate Investment Trusts)

The pandemic outbreak is a hurdle for planned investments and fundraising activities through REITs. Any planned fundraising through REITs will be put on the back burner currently. Investors are taking a step back and readjusting the values of REITs. The large scale destructuring will lead to positive disruption in the earning of pioneer REITs. 

The first hurdle for REITs is the government declaring it will charge a tax on any dividends or profits. Secondly, the physical meetings that were mandatory for decision making and real estate investment have put on hold. The wait and watch approach is bound to cause a delay in the timelines of planned fundraising exercises. 

Impact of coronavirus outbreak on stocks?
  • With the coronavirus outbreak, the global crude oil war has begun and the demand by the Organization of Petroleum Exporting Countries (OPEC)  restricted their production from April which is bad for the crude oil market. The Indian economy will have a negative impact on the fall of crude oil prices as it will bring down the fiscal deficit, inflation, etc. 
  • Gold becomes attractive in the uncertainty:

With the uncertainty, the demand for gold has gone up for a safe haven. However, the impact of gold will be more on the Indian economy because of the fall in the rupee. The gold exposure has brought down the portfolio volatility 

  • Equity markets are in bear hug:

During this time the equity market has jumped to bear territory. However, the risk is low due to less leverage in the Indian market compared to other markets.

Affect of coronavirus outbreak on the global real estate market?

The housing sector is highly affected due to this pandemic. The real estate industry in the US has its own challenges. Due to his outbreak, they will have to overcome the hurdle of the luxury houses in cities like New York, Miami, San Fransico.

As the supply of China is remained constrained, finding newer markets for supply will take time and hence India will face reduced economic activity. Commercial real estate will be slower than ever and the commercial investment decisions will be paused. The increase of capital can be expected since the investors will move towards a more stable bond market for investment. Financial markets are sensitive due to the recent crash of the Indian stock market 

Bottom Line:

Every sphere of the economy will be affected due to the coronavirus outbreak including the real estate industry. However, the domestic real estate industry will not be much affected. High-end luxury real estates will be most affected because the imports of the fixtures and furniture are mainly from China. Also, the outsourcing from Europian Union and the US market will increase gradually.

The industrial and logistics sectors are also expected to grow. China has slowdown all across the world, which creates an opportunity for India. Though all the industries are vastly affected due to the pandemic the economy can get stronger if taken preventive measures to avoid the spread of the virus and working aggressively on developing the vaccine.  

Leave a Reply

Your email address will not be published. Required fields are marked *