Real estate took dip during lockdown brought about by Coronavirus. Real estate after COVID faced a setback. Real estate COVID during the coronavirus received a jolt.
It is quite evident that Coronavirus has infected lakhs of people and the death toll is rising. The lockdown has affected investment prospects and it would interesting to take note of the impact on real estate.And Big real estate companies in Hyderabad.
1. Hotels: The most affected area is the hotels as there has much down- gradation of stock prices in anticipation of falling occupancies as well as room rates.
2. Retail Malls: Retail malls also got affected by COVID -19. These also form a part and parcel of real estate after COVID. Malls got shutdown as governments limited the gatherings. Retailers have been hit hard and had to negotiate rents during those months with landlords. Once normalcy is back it is hoped that the situation would improve.
3. Warehouses: Industrial activity has got badly affected during the lockdown period. There has been low demand for logistics assets such as warehouses. E-commerce companies are the only ones that hold demand in the segment but that too is bound to slow down. Real estate COVID during the coronavirus faced with lower demand issues.
4. Office: Another asset class to be affected is the Office. There are two types of tenants– front office tenants and back-office tenants. Front office tenants felt the impact in the medium term as hiring freezes kick-in and a general recessionary mindset sets-in.
Back-office tenants have proved to be quite a recession-proof. One might observe that rents in cities such as Bangalore, Pune, and Hyderabad did go up as multinationals outsourced more functions. These happen to be large leases and long term in nature. Hiring as well as employee churn has been major issues for tenants to reckon with as rents tend to be a very small percentage of operating costs. A lockdown of offices would mean tenants may not pay rents during that time. Of course, this would be a very small impact on cash flows.
5. Leveraged Assets: If there happens to be leverage in any of the above asset classes, the impact will rather be compounded. Leveraged hotel operators, malls, warehouses, and offices will face issues as banks call loans and insist on higher security. As revenue and operational income tend to go down, interest and principal payments tend to become a significant burden on underlying assets, even of the quality is good.
What Investors Should Do?
1. Investors need to purchase assets at below replacement cost (cost of buying land as well as building the property from the ground-up). This would imply that rents will not come down as new builds will require higher costs to be developed.
2. Try looking for leases which tend to have longer lock-ins and where tenants do spend on the fit-outs.
3. One can try signing leases with yearly escalations.
4. Use little or perhaps no leverage in buying assets that have no long lock-ins to match the riskiness of rental cash flows with interest as well as principal payments.
5. Looking for Grade for multinational tenants as rental costs happen to be a small proportion of total revenues.
6. Purchasing only completed lease assets so that leasing, as well as development risks, are rather mitigated.
Successful real estate investing involves identifying assets as well as pricing cycles and then crystallizing the right investment thesis at the right point in the given cycle. Real estate COVID India after is an issue that cannot be sidetracked for future real estate dealings.
