Will govt’s stimulus package boost real estate?
In the span of few months the COVID-19 health crisis has become an economic crisis. In response, the Indian government announced a financial stimulus of about Rs 20 trillion (US$ 267 billion). The aim of the intervention is to inject liquidity into the financial system, revive the economy, limit the impact on the labour market and boost confidence. In a latest report titled ‘India’s Financial Stimulus to Combat COVID19’, Colliers Research has analysed that liquidity and credit schemes account for about 74 per cent of the package, while monetary and fiscal support accounts for the remainder (26 per cent), showing modest immediate income support to India’s poor.
Sankey Prasad, Managing Director & Chairman, Colliers International India, believes “that the impact of the stimulus will be long-lasting, led by structural reforms introduced for certain sectors. The government’s Rs 300 billion (US$ 4.0 billion) special investment scheme for non-banking financial companies (NBFCs) is expected to help ease liquidity.”
“The package accounts for 10 per cent of the Indian GDP making it not only the highest in the emerging economies but also the 5th largest in the world in terms of percentage allocation to GDP. We believe the structural reforms, liquidity schemes and fiscal support provided by the central bank and Indian government are expected to provide some relief to stressed asset classes of Indian real estate. Furthermore, we believe faster implementation of the package should help reduce the impact of the economic uncertainty brought about by COVID-19. However, there is a need to stimulate immediate demand in the sector,” says Megha Maan, Senior Associate Director, Colliers International.
The analysis of the announcements related to the real estate sector is shared below:
Colliers Analysis:The government’s CLSS scheme offers subsidised interest on home loans for affordable and middle-income housing. The extension of subsidised interest rates should offer comfort to those homebuyers who are on the fence about home purchasing. In addition, the RBI has cut the repo rate to 4.0% to mitigate economic risks, with certain banks such as State Bank of India offering lower home loan rates to consumers. However, we believe that the demand for affordable homes, and the entire residential sector will hinge upon the revival of employment and the economy in 2020.
Extending the DCCO, to which the repayment schedule of an entity is linked, should provide a lifeline for developers in terms of financial stress and help them manage cash flows better. The resultant shift in repayment schedule cannot be treated as restructuring for commercial real estate projects. This ought to help developers use this relief to plan and alter construction timelines of their ongoing projects.
Industrial and Warehousing
Colliers Analysis:Farm gate infrastructure includes cold chains, storage centres, logistics and aggregation points. While the government plans to manage the storage centres, we believe that developing and creating modern warehouses and cold storage facilities for agriculture, and agri-based small businesses should emerge as an opportunity for private developers and third-party logistics players.