The coronavirus pandemic and the subsequent lockdown have put some world-wide commercial deals on hold, and the phenomenon is likely to continue, depending on how long it takes the government to address COVID 19. The market could however stabilize in the fourth quarter of 2020, say experts on real estate.
“These deals are highly unlikely to see realization or investors may flock back once the lockdown has been lifted. It's also unlikely the deployment of funds after June will be rushed. Commercial real estate activity will pick up in a phased way, and is likely to pick up around the fourth quarter during the festive season,” experts said. Deals are deferred. Investors are in a wait and see attitude as the effect of COVID-19 is still not very obvious. As and when they return to the table, a transaction expert said they would initially start investing in a phased manner.
Due to the outbreak of COVID-19 and the lockdown, many commercial transactions which had been in advanced stages and were supposed to be sealed by the end of the financial year are now on hold.
“While the quantum cannot be ascertained as of now, there will be a sizable section of deals that will either be put on hold or will see delayed action. It will also depend on the time it takes for India to be COVID-19 free and how India approaches that,” says Shobhit Agarwal, MD & CEO – ANAROCK Capital. Most of the investments were planned from the US, Singapore and other sovereign wealth funds around the globe, he says.
According to the data made available by Anarock Research, the inflow of PE funds in excess of USD 5 billion was observed in 2019. Until COVID-19, it was projected to be around the same amount, if not more. Real estate analysts are on the opinion that even if one were to take into account the next two quarters, the volume of the deal is likely to be reduced by half or about $2.5 billion, as "investors will not be in rush to invest immediately after June."
According to Samantak Das, Executive Director and Head of Research-REIS, JLL, investment in real estate in India during the Jan-Mar 2020 period declined sharply to an estimated $712 million compared to $1,704 million in the same time frame in 2019.
Restriction on movement of people and lack of clarity about the effect of the COVID-19 pandemic on the economy have contributed to a slowdown in the investment process. Sovereign wealth funds impacted by steep declines in crude prices and general economic pressure are likely to decrease their investments.
In the next six months, if COVID-19 condition remains same and business operations suffers, clients may begin re-negotiation of leases or request relief from developers / landlords on points such as lock-in number, fixed deposits, in order to cope with certainly increased financial pressure.
Megha Maan, Senior Associate Director - Research Colliers International India, said, “Occupiers are likely to delay leasing decisions by a quarter, with some even taking a watch-and-watch stance. If the current lockdown extends beyond April 15, 2020, we can expect delayed decision-making up to two quarters.”
Private equity investments were concentrated mainly in the top six cities-Delhi NCR, Bengaluru, Mumbai, Pune, Chennai and Hyderabad. Several existing real estate developers have also planned joint ventures and development management agreements.
“Everything's on hold, as there are almost no demands. Investors also are not in a rush to spend funds. It's like someone tapped the pause button,” say the experts.
As for the value of properties, would depend on the dynamics of demand and supply at that point in time. “While it is difficult to add a number to it, asset valuation will certainly have an impact and will be primarily based on demand and supply dynamics in a specific micro-market”. There is also a risk that sellers do not want to sell above a certain threshold.
Current travel warnings, despite fears about the coronavirus pandemic, have also contributed to delays in decision-making on commercial real estate take-up. “Some delayed decision making by occupiers who depend on clearances from overseas, especially Asia are expected,” a report by Colliers titled 'COVID-19: Impact on India Real Estate' has said.
Institutional investment from Singapore, Hong Kong and mainland China together accounted for 28 per cent of India's overall investment in real estate in 2019. However, slower decision-making in H1 2020 is foreseen, which could restrict the deployment of capital in India, according to the report.
Since more than two-thirds of Indian office demand comes from multinational companies in Europe and the USA, the economic downturn in these countries could have an effect on the medium-term demand for offices in India, according to an analysis by ICICI Securities.
Pre-leased potential supply and near-term leases in the leasing process can be deferred by one to two quarters depending on how the COVID-19 situation progresses. We see any COVID-19 driven economic slowdown in the US and Europe as a great danger to Indian office demand in 2021- 22 over the medium term.
“The changing economy situation due to coronavirus endangers to ruin the party”.
Source: Moneycontrol
Very informative