The gradual unlocking of the economy, pent-up demand, and improved affordability on the back of reduced home loan rates and attractive payment schemes and discounts have led to residential real estate recording a 60 percent quarter-on-quarter growth in the second quarter of the financial year 2021, an analysis by ICRA has said.
The COVID-19 pandemic had triggered one of the worst demand crashes that the Indian residential real estate industry witnessed in recorded history. Overall, the housing sales volume witnessed a Y-o-Y decline of 50 percent in H1 FY2021 across the top eight cities of the country. However, sales volume bounced back considerably with a Q-o-Q growth of 60 percent, recorded across property markets in the second quarter of the current fiscal, it said.
“An increasing focus on homeownership, both from domicile residents as well as the NRIs, has been aiding sales. Reverse migration has further supported an increase in housing demand in tier II/III cities,” said Shubham Jain, senior vice president and group head at ICRA.
Notably, increasing digitisation has played a key role in enabling sales in the current environment, with extensive use of digital marketing and digital engagement tools by the developers aiding online home sales and transaction payments. The crisis has thus pushed the sector towards widespread technology integration.
Buyer preferences for rightly priced inventory at advanced stages of construction continued to be in place, although larger format units seemed to be finding increasing favour, possibly due to the requirement for dedicated work and study areas.
Average sales of under-construction units decline
While the quarterly average sales for under-construction units registered a decline of 78 percent during H1 FY2021, a significantly lower decline of 29 percent was noted for advanced-stage or completed projects. With the higher pace of recovery for advanced-stage or completed inventory, this segment contributed to over half the Pan-India sales generated in Q2 FY2021.
This preference, combined with the significantly higher supply of under-construction units versus advanced stage units, is expected to pose challenges for developers having a high dependence on sales from under-construction inventory. However, demand for under-construction units will remain supported to some extent by buyers preferring staggered payment, parallel plans of liquidating other holdings, the analysis stated.
1.5/2 BHKs highest contributor to supply, sales
In terms of flat formats, 1.5/2 BHKs have traditionally remained the highest contributor to supply and sales, followed by 2.5/3 BHKs. While the sales mix remains similar post-COVID, the absorption level for 5BHK and other large formats has increased significantly in Q2 FY2021. This is possibly due to increasing preferences for dedicated work or study areas and second or holiday homes, due to expected changes in working and living styles going forward, it said.
Increased demand from NRIs on the back of returns to the homeland may also have supported the trend, as such buyers typically opt for larger format flats, and the current depreciation of the rupee, together with attractive deals would have supported their purchasing power. Demand has also increased considerably for 1BHKs, primarily supported by first-time homebuyers, thus reflecting the growing importance of owning a flat.
Affordable and mid categories highest contributors to sales
In terms of ticket size, the affordable and mid categories have remained the highest contributors to sales, followed by the upper-mid segment, both before and after the onset of the pandemic, primarily on the back of low ticket sizes and a high level of government incentives, the analysis said.
The uptick in absorption levels during Q2 FY2021 has also been driven by the affordable and mid/upper-mid segments, indicating the higher resilience of these segments to the demand headwinds currently prevailing in the residential realty market. Thus, established developers with a higher proportion of well-priced inventory, catering to these sweet spots, are likely to see a quicker pace of recovery in sales.
MMR, Pune, and NCR remain highest contributors to pan-India sales
Overall, in terms of geography, MMR, Pune, and NCR remained the highest contributors to pan-India sales in Q2 FY2021, in line with the past trends, given the high level of marketable supply available in these markets. However, the extent of recovery and the absolute level of absorption remained amongst the lowest for the over-supplied MMR and NCR regions.
Thus, the high inventory overhang in these regions remains a concern, with liquidation of the same amongst heightened demand risks likely to witness challenges, it said.
Notably, the extent of the recovery in absorption has been relatively higher in Pune, Kolkata, and Ahmedabad, primarily on account of the low average ticket size of the units in these regions. Around 90-95 percent of the marketable supply in these three cities is priced within Rs 1 crore per unit. Hyderabad, which has enjoyed the highest absorption rates in past years, also posted a relatively strong recovery, supported by continued demand generation, stemming from its IT-based growing economy.
“Going forward though, sustainability of the uptrend and its drivers remains to be seen. Moreover, with the Q2 FY2021 sales still remaining 37 percent lower than the levels recorded in Q2 FY2020, a return to pre-COVID sales levels also remains a key look-out area. ICRA continues to expect the overall financial and operational performance of real estate developers to be adversely impacted in the short term due to the escalated demand risks, lower collections, and COVID-related disruptions in project execution,” said Jain.
Developers with adequate balance sheet strength, available liquidity, financial flexibility, refinancing ability and a well-diversified project portfolio are expected to be better positioned during this crisis. Consequently, the trend of market consolidation is likely to accelerate, with range-bound prices and low home loan rates expected to continue supporting sales for established players, he added.
(Source: Moneycontrol)
