A recession leads the global economy into a severe decline and affects a lot of sectors including manufacturing, IT, finance, and others. It affects the GDP, trade relations, transactions, and purchasing power of consumers.
In spite of that, there are countries and sectors which have prepared their ways out of a such situation.
And, the real estate sector in India is turning the tables even in the face of the looming 2023 recession. According to the Housing.com survey of the year 2020, residential real estate assets were the most preferred asset class for 35% of people.
Global impact of Covid recession on the market
The recent “covid recession” has disrupted the running market and its stakeholders. It led businesses into turmoil which caused unemployment, inflation, fiscal deficit, and lagging GDP growth.
Globally, the low cash flow in the IT sector is one of the many effects of the recession. Another reason is the cost of construction has increased. The increased prices lead to rising housing costs and buyers show reluctance in buying.
A poor economy leaves few people who can afford to buy a house or property. When supply is higher than demand, a large section of properties remains unsold. Overall, home values fall and the market remains stagnant.
However, the Indian real estate business stood in the face of the pandemic and recovered. According to a report by the property brokerage firm PropTiger.com, during the October-December period of 2020, India’s eight prime residential markets saw a 68% increase in units sold, totalling 58,914.
A noticeable shift in consumers’ behaviour
In a recession, consumers don’t like to put large sums in the market. Due to the sense of uncertainty of ‘what will happen’, consumers go low and reduce their purchasing power. More layoffs and cutting cost habits of businesses lead to less money in the pockets of common people. Furthermore, consumer behaviour has taken a turn towards hygiene, a sustainable environment, and limited risk-taking.
Real Estate assets are the first choice for Indian consumers
In India, the real estate business acts like investors. Real estate assets come into the steadiest asset for an Indian buyer.
Be it commercial real estate properties or residential assets, consumers find them investment-worthy. The idea of getting a regular cash flow from a safe property investment has attracted a lot of small-time investors.
Residential real estate assets are illiquid, immovable, have high appreciation value, and give decent rental income. Commercial assets are very appealing for buyers as physical offices and retail stores have surfaced after two years of lockdown and uncertainty.
A government-empowered Real Estate business
The Indian government has rolled out multiple mega-infrastructure projects such as the Bhrahmtala Project, the construction of multi-lane Expressways, new rail and airline projects along with the housing scheme “Pradhan Mantri Awas Yojana”. These will drive the growth in the realty business.
Apart from this, the government has reduced tax-related schemes and other incentives for buyers. The tier-2 and tier-3 buyers will get benefits from these schemes and projects.
A golden opportunity for Real Estate in the Indian Tier-2 & Tier-3 Cities
Tier-2 and tier-3 cities have become the golden goose for real estate because of the development of industrial corridors. These corridors are for trade, commerce, faster movement of goods, manufacturing, and economic integration. These corridors may change the economic landscape of tier-2 and tier-3 cities. These cities will provide ease of doing business, quality space for warehousing and logistics, and seamless connectivity to tier-1 cities. The real estate sector is anticipated to boom in these cities.
Immense employment potential in Real Estate sector
Even, after the recovery from the pandemic and lockdown, IT companies are trimming down their employees in order to avoid any monetary issues.
Amidst the bleak economical environment, the real estate sector continues to rise with great numbers.
As per India Brand Equity Foundation’s (IBEF) report, the real estate sector in India will contribute 13% to the country’s GDP in 2025. The report indicates how the Indian realty sector become a big player in job generation.
Many Indian real estate firms are on a hiring spree when IT companies are in firing mode. These real estate firms are looking for blue & white-collared talents to cater for the rising demand of consumers.
Conclusion
The year 2023 is going to be a deal-breaker for the Indian real estate sector as it aims for the bigger picture. The Indian consumers’ psychology toward real estate assets regardless of the recession will not affect because of the path-breaking economic developments and government schemes and initiatives to empower potential buyers.
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Disclaimer
Views expressed above are the author's own.
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Opinions
I am an expert with a deep understanding of economic trends, especially in the context of recessions and the real estate sector. To demonstrate my expertise, I will provide comprehensive information related to all the concepts used in the article you've shared.
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Recession: A recession is a significant decline in economic activity that lasts for an extended period, typically defined as two consecutive quarters of negative GDP growth. It often leads to reduced consumer spending, business investment, and economic instability.
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Global Economy: The global economy refers to the interconnected economic activities of countries around the world. It includes trade, financial flows, and the exchange of goods and services between nations.
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Sectors: Sectors in the context of the economy refer to distinct categories of industries that share similar characteristics or functions. Common sectors include manufacturing, information technology (IT), finance, healthcare, and more.
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GDP (Gross Domestic Product): GDP is a key economic indicator that measures the total value of all goods and services produced within a country's borders during a specific period. It is used to assess the overall economic health and performance of a nation.
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Trade Relations: Trade relations involve the interactions and agreements between countries for the exchange of goods and services. Recession can disrupt trade relations, leading to reduced international trade.
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Transactions: Transactions in this context refer to economic activities involving the buying and selling of goods and services, including financial transactions, which can be affected during a recession.
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Purchasing Power: Purchasing power is the ability of consumers to buy goods and services with their income. During a recession, purchasing power often decreases due to factors like rising unemployment and inflation.
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COVID Recession: The "COVID recession" refers to the economic downturn caused by the COVID-19 pandemic. It resulted in widespread disruptions, including business closures, job losses, and supply chain disruptions.
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Cash Flow: Cash flow is the movement of money into and out of a business. A recession can lead to reduced cash flow for businesses, impacting their operations and ability to invest.
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Cost of Construction: The cost of construction refers to the expenses incurred in building or developing real estate properties, including materials, labor, and overhead costs.
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Real Estate Sector: The real estate sector includes activities related to buying, selling, and developing properties, including residential and commercial real estate.
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Property Investment: Property investment involves purchasing real estate assets with the expectation of generating rental income and capital appreciation over time.
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Government Initiatives: Government initiatives, such as infrastructure projects and housing schemes like "Pradhan Mantri Awas Yojana," are efforts by the government to boost economic growth and development.
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Tier-2 and Tier-3 Cities: These are categories used to classify cities based on their population size, economic development, and infrastructure. Tier-2 and Tier-3 cities are smaller than Tier-1 cities but are experiencing growth and development.
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GDP Contribution: The contribution of the real estate sector to a country's GDP indicates the industry's economic significance and its impact on overall economic growth.
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Job Generation: Job generation refers to the ability of an industry or sector to create employment opportunities. A robust real estate sector can contribute significantly to job creation.
In conclusion, the article discusses the impact of the 2023 recession on various sectors, with a focus on the resilience of the real estate sector in India. It highlights factors such as government initiatives, consumer behavior, and the potential for job creation in the real estate industry despite economic challenges.
