Coronavirus lockdown: What should investors do now?

The outbreak of COVID-19 has had a sudden and significant impact on all aspects of people’s lives. The short-term human and economic impact is undeniable as people stay home, offices and shops close, and production stalls. Once the risk to human life has reduced and steps are taken back toward a fully productive economy, it is worth spending some time envisaging what this ‘new normal’ might look like. China is offering us some visibility on what this might be.

A recent report by a global consulting firm stated that the level of March 2020 residential property sales in China stands at almost 95% in comparison to the December 2019 levels. If this bounce back after the lockdown that ended last month in China is an indication of a trend, the Indian real estate market is also likely to witness a similar scenario after attaining normalcy. What makes now a good time to buy properties? Ever since the lockdown started, property sales have fallen drastically. As it is a common behaviour to follow the majority, one might become hesitant to invest in real estate. However, there are a number of factors which make now a perfect time for buying a property.

  • Property prices: As mentioned above, property sales have fallen as a result of the pandemic. The inventory of unsold properties is huge for many developers, making it urgent for them to sell the properties. At times like this, it is possible to bargain for a lower price because the developers would be trying hard to increase their sales. Some builders might even offer discounts on their projects.
  • Stability: Many investors used to prefer stock market over real estate as stocks come with better opportunities for higher returns. Now, during the pandemic, the stock market has become volatile and is running in losses in many cases. On the other hand, investments in properties are much more stable. Although the returns are lesser than that from stock market in most cases, you have significantly lower chances of running into losses.
  • Temporary situation: For now, the demand for properties is far lower than its supply. The resultant fall in prices is also temporary. Once we get through this situation and things start returning to normalcy, property values will again start to rise. Thus, you will not only be able to buy your property at a lower price if you invest now, but can also earn high returns due to the rising rates in the future. Apart from rental income, resale value would also be quite profitable due to rising land rates.
  • Time for considering options: With the lockdown going on, most people have more free time than before. Therefore, they now have more time that they can dedicate to checking the backgrounds of the developers and the benefits and drawbacks of a particular project. This is a major advantage as it allows one to make the investment very carefully.

Things to remember before investing

While now is indeed a good time to invest, there are a few risks and limitations. It would be beneficial for you well-informed, as you would be able to make a wiser investment.

  • Bargaining: As discussed previously, the current situation gives buyers the opportunity to bargain for lower prices. You could start by offering to pay about 510% to 105% lower than the price the developer asks for. However, before you bargain, it is better to run a background check of the developer. You should gather information on the sales and price trends of properties by that developer in the recent months. You might also want to check how frequently they offer major discounts. These can help you gauge if the builder is desperate to sell the property or would rather wait for a buyer who would pay their desired price.
  • Financial obligations: While a property can be a backup plan for income, one must not forget that it would take some time to liquidate. In that case you cannot rely on rental income to pay the EMIs, down payment, taxes and maintenance costs. It is recommended to invest in real estate only if you have a source of income which you are very unlikely to lose or if you have enough savings.
  • Who should invest: Apart from the investors with a stable income as mentioned in the above point, now is an especially good time to invest for certain people. NRIs would have a huge advantage due to the decreasing value of the Indian rupee as compared to the USD. They can get around the problem of not being able to travel by booking their property online. This is also a perfect opportunity for investors who were ready to buy before the lockdown and were only waiting for prices to fall. If you have already shortlisted the properties and are ready to make the purchase, investing now would be wise.
  • Other: You must remember that the pandemic is no’t always the reason behind lower prices. Before you invest, make sure to check for possible land disputes, title issues and other problems related to the property. Do not make a hasty decision just because of a limited period offer. A number of developers are offering virtual tours of their projects via video calls, or allotting special time slots for the interested buyers to visit the property one by one. Try to buy a home from such a developer so that you know what you are actually paying for.

Everything comes with a positive and a negative side. While the pandemic is badly affecting most developers, the buyers have an advantage now. However, some developers have still managed to make decent sales during this period. Analysing all these factors and your current situation, you might want to make an investment while the opportunity lasts.

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