Environment is dynamic in nature; it keeps on changing and evolving from time to time. This nature of environment is pervasive in sense; and each country has to survive it by adapting through its form. And when such an environment gets hit by a pandemic such as Covid-19, each and every sector of the economy is drizzled and the success of the economy depends upon how it would adapt such rapid and unforeseeable circumstances to convert such a shock into its victory.
People from all around the world are struggling to find a way so that they can save themselves from falling apart. This rampant condition has paved a way of a new concept of ‘Work from Home’ (WFH), wherein since the start of the lockdown, employees have started working from home to earn bread and butter for their family in such an inadvertent condition.
This epidemic has certainly affected the real estate sector, mainly focusing upon two main heads of this sector i.e. Residential Housing Sector and the Commercial Property Sector. The new practice of WFH has become a standard practice for many of the employees and it will do so even after the Covid-19 situation would have resolved. About 50-60% of the workforce has adopted this new method in order to keep their services uninterrupted despite the widespread.
There are certain reasons why India is seriously considering WFH as a new constant option as it would encourage more women, especially mothers to join the workforce, who earlier were hesitant to travel for long hours or to leave their children at home or for any other personal reasons. It will ultimately contribute to the age-long battle of women empowerment. Another big reason for considering this choice is that it will act as a great apparatus for cost-savings, convenience, effective productivity, thereby inducing huge surplus into the organization which earlier was not so possible because the company had to make arrangements for office space which approximately cost them around crores of Rupees as they took the building on a lease, other than this the cost of staff transportation, air-conditioning, ventilation, food court, furnished office space, etc added to their cost.
Impact on real estate sector-
Since the modernization, the property that a firm holds symbolized its status: large-scale office building, fully furnished campus with full amenities basically indicated its success and brand image. But this idea is slowly changing due to the pandemic and poses a serious threat to the real estate sector. Whether the real estate sector would fully crash down, is a serious question to be dealt with, but truly speaking the downfall has occurred. It can be inferred through two broad heads of the sector-
Commercial real estate sector-
It can be seen that this sector is a more profitable and reliable investment than residential property. But if the widespread continues the culture of WFH would sweep away the benefit of it. With big MNCs adopting this kind of culture, are discovering that they no longer require those big house offices with equipped campus due to the fact that it is summing up the cost of the company and they are not in a state to pay such huge rents at this point of time. According to the reports lakhs of square feet of offices have been vacated for a few months. Companies are not only compromising with the office space but are reducing the pay-scale of employees and are barring itself from fresh hiring, which as a result is leading to a shift in smaller accommodations or more affordable locations that can be as per their budgets.
The demand for office space has came certainly, but it is not expected to crash as some of the companies are of the idea to modify their offices in order to suit new norms and guidelines to decrease the office space. As more executives are required to WFH there can be a rise in demand for more bigger and flexible houses, so that they can convert rooms into workspaces.
There can be a prominent shift in residential housing, from urban areas to peripheral areas for bigger houses at affordable prices, if the situation continues. The earlier concept was that people used to buy houses that were near to their workplace so that much time was not invested in travel. But these trends have changed and people prefer to buy rather than to live in a rented house. As peripheral areas are more profitable than urban areas, as a house (1000 sq.ft) within the city limits of say Bombay would cost approx. two crores, but at the same time it would cost around fifty-five lakhs rupees in a peripheral area (about 70% of cost difference). With the ride of WFH culture, homebuyers prefer to live in more spacious and cost-effective homes in less urban areas, which they could not because of the fact that their workplace was in a central populated area.
The pandemic has posed a challenge for homebuyers who want to invest in residential housing as at this point of time as the cost of labor is high and they would not get any profitable deal, unless and until RBI reduces the repo rate so that loans become cheaper, by low rate of interest and lucrative reduced EMIs, that will attract most of the customers. By such a scenario, the residential housing sector would also sail through this pandemic.
The whole globe is affected by Covid-19, real estate companies are being hampered depending upon the region and asset class. It will depend upon them, how they will survive through this pandemic. And how they will change this challenge into an opportunity so that they would not crash down. Prior to Covid-19, the real estate sector was strong with strong leverage ratios and the amount of capital. But for the future aspects, executives are trying to understand how quickly they could recover with available opportunities.
“The views of the authors are personal“
- Sachin Dave, Saloni Shukla, Kailash Babar, What work-from-home means for commercial real estate, ET BUREAU (June 18, 2020, 10:05 AM).