The novel Coronavirus or COVID-19 has created one of the biggest nightmares in recent years. Not only it is a major medical crisis, but the adverse impact is being felt by the global economy. To contain the further spread of the disease, nations are taking the hard stand of complete lockdown. Although a necessary and prudent step in these testing hours, it has also brought all the economic and business activities to a grinding halt.
A host of sectors such as tourism, hospitality, entertainment, aviation have been badly hit and it might take few quarters from here for a complete revival. There are other sectors such as real estate, construction, infrastructure, etc which are relatively less exposed to the downturn triggered by COVID.
Although the real estate sector is facing the heat of the lockdown and economic uncertainties and sales numbers have taken a beating in the recent week, the realtors are making a calibrated response by going digital. They are leveraging on digital launches, e-meetings and online transactions to keep the momentum going.
Amidst such chaos, mid-sized commercial assets (Rs 20-40 Lacs) such as office and retail spaces are emerging as the new favourites. Buyers and investors are betting big on such assets to hedge against future unpredictability. Amidst these uncertain times, investors are realizing the need for risk-averse prudent alternatives that can ensure recurrent income. As the equity markets are staggering and financial markets are distressed, commercial real estate offers a compelling alternative. A grade-A quality commercial asset can render Rental Yield up to 12 per cent. Even in cases, when tenant finalization will take around 6 months, commercial assets can give high rental returns. As the overall commercial sector is robust for some time, elevated returns should continue without any possible compression.
Interestingly developers are also coming up with attractive and flexible payment plans, where one has to pay just 5-10 per cent for the bookings and rest can be paid after the lockdown. Thus, for an Rs 30 Lacs asset, one needs to pay just 1.5-3 lacs to make the initial booking. Such a transaction can be easily facilitated digitally. The remaining payment can be made after the lockdown following the physical inspection.
The recent weeks have seen notable growth in Investments emanating from the NRI quarters. Many such buyers are investing in a portfolio of properties. One of the major factors driving the spurt of interest is the weakened value of Rupee. The Indian Rupee has been trading low for some time, which was further aggravated due to FII outflow caused by the COVID crisis. This has resulted in a further dip in Rupee value. Many NRI buyers are trying to leverage this opportunity. Commercial assets also offer attractive capital appreciation in the medium term.
To gauge the overall impact of COVID-19 will take some more time. Analysts are split in their opinion. Some believe that the distress in the sector will continue, which is already suffering from strains in the macro-economy and liquidity crunch. On the contrary, others believe that markets will soon bounce back stemmed by the upside from the fiscal packages, cheaper home loan rates, and relief in credit policies. Only time can give the right Judgement.
Nevertheless, commercial assets will continue to enchant a lot of investors and buyers in the current time, who are looking for safer investment options. Commercial Real estate on the back of attractive rental yields and potential capital appreciations will be a better alternative to fixed income and stock markets, where sentiments are fluctuating off late.
The author is the Senior VP, Commercial Real Estate Vertical, 360 Realtors