Wednesday, March 11, 2020

Impact of Corona virus Outbreak on Indian Real Estate


Corona virus outbreaks in Wuhan, China and the recent discovery in Delhi NCR have severely affected business sentiment.

The World Health Organization(WHO) declaring it a global health emergency, business sentiment has been severely affected. The outbreak has created uncertainty about trade and imports not only in China but worldwide. The real estate industry was not spared either. Traders are wary of going to mainland China and production is expected to decline in the coming months. This will have a direct impact on the prices of steel and other articles used in the construction industry in India.

Let us discuss in detail the potential impact of corona virus on Indian real estate and allied industries.

Why will the Indian real estate sector be affected?

India imports heavily from China the articles used in construction activities. Some of these are –
  •     Iron and Steel Products
  •     Technical construction equipment
  •     Electrical equipment
  •     Plastic and fiber elements
  •     Solar panels


Although India is the second largest producer, it is severely lagged in terms of production capacity, which stands at 106 million tonnes. This heavy reliance on China for steel and steel products is a cause for concern for the industry. With production down in China, prices in allied industries are bound to rise, leading to increased costs and lowering the profit margins of real estate developers in India. The slowdown in the construction industry in China will result in downward pressure on global metal prices.

According to a recent CBRE report, in 2019 there were more than 300 Fortune 500 companies operating in Wuhan, China. Its outbreak will force companies to offer more flexible work practices such as 'work from home' and not co-working spaces. Businesses can delay real estate decisions and restrict new launches. However, the report suggests that mainland China will be more affected by the outbreak, and neighboring countries may only see an inter-dip in business activities.

An Opportunity?


From the Indian business point of view, the outbreak of corona virus may be an opportunity for Indian businesses to increase production capacity and speed up the "Make in India" campaign. The Government of India is encouraging steel companies to increase production capacity and gain larger market share. In the present scenario, the Ministry of Steel, Government of India is preparing a strategy paper for 10 million tonnes of special steel production at a cost of Rs 50,000 crore with 50,000 employment prospects.

In addition, solar panel manufacturing companies can also benefit from reduced supply and bring down long-term costs by increasing production.

In the same spirit, Pankaj Kumar Jain, Managing Director, KW Group, says, "The impact of the corona virus outbreak on the Indian real estate industry will be indirect. Although China is directly affected, supply-side constraints provide an opportunity to explore other avenues for raw material procurement.The industry is already facing global economic slowdown and sluggish demand. Although its outbreak is still not a threat in the Indian scenario, the government should take stringent steps to prevent the spread of infection, so that business sentiment is not further affected. "

In particular, with the recent report of Corona virus reaching Delhi NCR and Noida, the real estate industry needs to curse itself for even worse effects than before. However, the world has faced similar outbreaks like SARS virus, bird flu etc. in the past and has successfully recovered.

Every disaster is an opportunity to scale new heights. Indian real estate and allied manufacturing industries should explore positivity in the landscape and benefit by increasing production and indigenous innovation. The government will do well to prevent further spread of the virus and handle the industry in times of crisis.