BackCovid impact: Capital, labour crunch stall restarting of realty projects
Covid-19 may have wreaked havoc on the overall economy, but impact on the realty sector has been particularly harshSeveral real estate projects faced delays and were stalled before the virus outbreak
PremiumBENGALURU : Construction of a large number of real estate projects across cities has not restarted even after lockdown restrictions were lifted due to a severe liquidity and labour shortage that developers are facing.
While the labour shortage may be resolved in the coming months, the capital shortage is likely to linger much longer, that may induce a spiral effect leading to delay in possession of homes, cash flow issues and significant rise in cost of capital.
The covid-19 crisis may have wreaked havoc on most businesses and the overall economy, but impact on the real estate sector, which was already facing a prolonged slowdown, has been particularly harsh.
“Besides labour and cash shortage, there is a third factor, which is the lack of demand. Banks are still cautious in giving money. Even those customers who are buying are asking for time to make payments. While green shoots are visible and there are people visiting our website and asking for a good deal, all the three factors- cash, labour and demand- are important and need to revive to make it work," said Niranjan Hiranandani, co-founder, Hiranandani Group.
M. Murali, managing director, Shriram Properties Ltd, which has projects in Bengaluru and Chennai, said that while site visits have slowly started in June, there is big-time impact on ongoing construction of projects with migrant workers unable to return.
“...Around 90% of our project workers come from West Bengal, Jharkhand, Uttar Pradesh, Bihar and are not locals. Locally, adequate workers are not available today. We are trying to solve the problem so that construction can properly resume," Murali said.
Several real estate projects faced delays and were stalled before the virus outbreak. Three months later, the situation has only become worse.
Pankaj Kapoor, CEO of Liases Foras Real Estate Rating and Research Pvt. Ltd said that only 40-50% of projects have resumed work.
“Demand shrinkage and labour shortage will only aggravate the stress and both credit and cash flows will be impacted, with disbursement being linked to construction progress. Several projects were anyway in the high execution risk category, and the numbers will only rise now," Kapoor said.
Anarock Property Consultants said in a recent report that home sales during the April-June period in the top seven cities plummeted by 81% to 12,270 units compared to from 68,600 units in the corresponding year-ago period. Project launches also fell by 98% in the period with just 1,390 units getting launched. Project launches include two in Bengaluru and one each in Pune and Kolkata.
Amit Goenka, managing director of Nisus Finance Services Co., which lends to developers, said that there is huge supply side disruption and projects across India are working at an average 30% capacity and as a result, cost of capital will rise significantly if projects lose six months or more.
“...Inflows of current customers have come to nought and lenders are wary. There is only around 30% of capital (about ₹25,000-30,000 crore) available against the total demand. Developers are willing to pay a larger premium to their cost of borrowing for working capital and are deploying cash only in projects which are likely to get delivered sooner. Longer gestation, larger projects are on hold," Goenka said.
Juggy Marwaha, executive managing director, JLL India said that in the current situation, most migrant labourers are not keen to return even as a lot of builders have made efforts to bring them back. The liquidity problem has only made the situation worse, he said.
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