Foreclosure fears real; property not best hedge against crisis

If the Indian real estate was gasping for breath since long, Cronavirus has further pushed it to the ventilator. Track2Realty in an online poll finds that the challenge is no more limited to the unsold inventory, liquidity crisis & buyers’ reluctance, but to keep the existing buyers stay afloat. Job losses and salary cut threatens to make foreclosure a reality now.

Now that the job losses and the salary cut due to Coronavirus hit economy are increasingly becoming the reality, the sentiment of the home buyers across the country is at all time low. Foreclosure that was never a predominant reality in the Indian housing market has suddenly become the unavoidable scary thought.

While the prospective home buyers can afford to maintain a social distance from the housing market in the literal sense of the term, those who have already made the investment feel even worse. Everyone is into the cost & benefit analysis of sustaining with the burden of housing loan. Exit strategy is on top of the mind of average salaried class for whom property EMI is the biggest expense on the books. 

More than two third of the Indians, as many as 70% are apprehensive with the New Normal scenario of job loss or salary cut. More than half, 52% to be precise, of the home buyers working in the top 10 cities maintain that it would be difficult to stretch the livelihood along with the house EMI for more than a year after having lost the job. 42% of the home buyers categorically say that they would offload the house burden if they are asked to leave by the employers.

These are the findings of an online survey by Track2Realty. The survey was conducted between April 5-25 to assess the impact of the increasing job losses and salary cuts across the Indian corporations. A structured set of questions was given to the respondents, with both the open-ended and close ended queries to understand the mood of the home buyers.

The survey was grouped into 5 key areas of Coronavirus adding to economic challenges & inflation; job losses & salary cuts; future buying sentiments; housing demand in future; and the expectations from the government. The survey noted that the mod of the urban Indians in the housing market is quite pessimistic and sentiment index is all time low.

“My management has sent notice to us to be ready for hard decisions where some of us could lose jobs. Already we got a salary cut of 20% for which we had no choice but to give consent. I have a double burden of both the rent and the EMI and it is hard to keep the home loan burden over my head now. Will explore means of exit with the home loan where I don’t lose my major investment,” says an employee in one of the media companies.

Survey Highlights

70% Indians feel job loss & salary cut are realistic assessment

52% Indians can’t sustain housing EMI for more than a year if they lose jobs

42% Indians among those who are likely to lose jobs are already working on the exit option

44% home buyers don’t think house is best hedge in crisis

68% among the new bookings are likely to exit the housing burden

In case of 40% salary cut more than half the home buyers would exit the housing burden

92% Indians don’t think this is the right time to buy

80% prospective home buyers won’t be tempted even if there is a price cut

84% Indians believe government focus is on the builders and not buyers

78% Indians demand EMI deferment in case of job losses

72% Indians demand loan restructuring in the wake of salary cut

In what could be an anti-thesis of conventional wisdom to have a property as means of financial security, more than 4 out of 10, as many as 44%, don’t think a property is the best hedge against financial crisis. On the contrary, there is a general despondency that  the property could be potential shackles in times of financial crisis.

“I have got the pink slip in the first week of April. Beyond two to three months I won’t be able to pay the EMI, if I don’t get another job. You know it well that the job market has no opening for the next few quarters. Can I sell the house? Even if I go for a distress sale, I may not be able to repay to the bank with all the initial payments being calculated as the interest. In times of financial crisis I feel a house could rather be a liability than asset,” says Akhil Parekh, an automotive engineer in Mumbai.  

The developers who were struggling to sell for the last few quarters and could sell some of the inventory in the recent festive season have to weather even worse news. No less than 68% of the recent bookings could see the exit of the buyers due to the economic uncertainty and potential inability to continue to pay the EMI. More than half the home buyers, precisely 54%, plan to exit the housing loan commitment if their salary is cut 40% or more.   

Amidst the widespread belief that the Coronavirus hit economy would lead to crash landing of the property market, the moot point is whether this is the right time to buy. Unfortunately, for the vast majority of the developers sitting over both unsold inventory and mounting debt, the mood of the nation would only disappoint them. Nearly all the Indians, a whopping 92%, believe this is not the right time to buy property. Worse even, 8 out of 10, precisely 80%, maintain that even a price cut won’t tempt them to buy the house now.  

“It is better to be safe than sorry with the house purchase at this moment. Unless the real impact of the Coronavirus over the job market is fully evaluated, it would be foolish to buy in temptation of some price cut. It is a long commitment and we must be prudent. That is what I would advise to all my clients,” says Rohit Nagpal, a financial planner. 

84% of the Indians even blame the government for its focus on only the builders and not the buyers. Amidst the widespread apprehensions of job losses and the salary cut there is some suggestion for the government as well. 78% respondents said they demand the government to defer their housing loan payment for a year in the wake of job losses. 72% of those having faced or expecting the salary cut request the government to direct banks for loan restructuring that could ease their EMI burden.

Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.

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