Housing sales in the country’s top eight cities fell by 54 percent year-on-year (YoY) to a decadal low of 59,538 units during the first half of 2020 on account of the COVID-19 pandemic, according to a Knight Frank India report.
New launches also fell by 46 percent to 60,489 units. The pricing environment weakened with developers either offering a discount or some form of a financial benefit scheme to prospective homebuyers, says the report.
On the office market front, transactions in the first half of 2020 fell by a massive 37 percent YoY to 17.2 million sq ft — the steepest fall in a decade. New completions this year fell by 27 percent YoY, the Knight Frank India’s flagship half-yearly report ‘India Real Estate’ said.
“With the economic uncertainties creating significant headwinds, we expect the office space take up to remain cautious. Most occupiers are expected to hesitate in committing to expansion in the current market scenario and may delay their leasing decisions for later,” said Shishir Baijal, chairman and managing director, Knight Frank India.
Impact on the housing market; NCR worst hit
The impact of the pandemic induced lockdown on the real estate market can be gauged by the fact that sales and launches have capitulated by 84 percent and 90 percentYoY in the second quarter of 2020 across the eight markets under review.
NCR, Chennai and Hyderabad had near zero sales during this period while developers were forced to postpone launches across markets due to labour unavailability and the well anticipated drop in demand.
Nearly all eight cities under coverage saw sales and launches fall steeply but NCR was the worst affected market with sales and new launches capitulating 73 percent and 82 percent YoY respectively during the first half of 2020. NCR’s share of launches and sales nosedived from 7 percent to 2 percent and from 15 percent to 9 percent YoY respectively during the first half of 2020 compared to the first half of 2019.
Sales in traditionally end-user markets like Bengaluru and Hyderabad also fell sharply by 57 percent and 43 percent YoY respectively during the first half of 2020.
Mumbai continued to lead in terms of share of launches and sales in the first half of 2020 at 39 percent and 31 percent respectively.
Pandemic, income disruptions impact sales of units priced under Rs 50 lakh
Income disruptions caused by the economic slowdown and the pandemic imposed lockdown adversely impacted homebuyers in the affordable segment.
Developers continued to focus on launching products in lower ticket sizes where most of the homebuyer demand is concentrated, as many as 58 percent of the units launched in the first half of 2020 were priced under Rs 50 lakh compared to 51 percent in the first half of 2019.
However, the sales in the under Rs 50 lakh ticket size have reduced in the first half of 2020 to 47 percent, down from 50 percent in the first half of 2019, the report said.
Unsold inventory increases
Unsold inventory across the top eight markets dropped marginally in the first half of 2020, registering a 1 percent decline to 446,787 units.
In the first half of 2020, Mumbai had the highest quantum of unsold inventory at 150,154 units YoY, followed by NCR at 118,064 units YoY and Bengaluru at 77,043 units YoY, the report said.
Prices fall
Weighted average prices have also fallen across most cities in the first half of 2020 with NCR, Pune and Chennai seeing the most correction at 5.8 percent, 5.4 percent and 5.5 percent respectively YoY by the end of the first half of 2020.
Outlook for residential real estate remains bleak
The near-term outlook on sales remains bleak and depends completely on how the pandemic impacts the economy in the second half of the year. With the COVID-19 crisis, ensuing income uncertainty and poor consumer sentiments, demand would be further severely hit in 2020.
The residential real estate market stands precariously poised with a funding crisis only having gotten worse in the first half of 2020. The six-month moratorium on term loans till August 31, 2020 has reduced immediate pressure on servicing their debt burden but cash flows are under pressure like never before.
The six-month extension on RERA completion dates for all registered projects scheduled for completion after March 25, is another measure to help developers cope with this highly stressed environment. However, this temporary lease on life might not be significant enough if homebuyer sentiment and sales do not revive, the report said.
Office market suffocated by the pandemic induced lockdown
The office space market felt the full force of the COVID-19 pandemic in Q2 2020 with the lockdown crippling the economy and threatening to completely change the face of the Indian workplace.
Office demand and supply came to a near standstill during Q2 2020 with total transactions and project completions falling 79 percent YoY in the second quarter of 2020, the report said.
Transactions in the first half of 2020 fell by a massive 37 percent YoY to 17.2 mn sq ft, the steepest in a decade. Demand fell the most in Pune and NCR markets at 47 percent and 45 percent respectively while the Mumbai transaction volumes fell by a comparatively modest 17 percent YoY due to two big ticket leases totalling 1.8 mn sq ft that amounted to almost half of Mumbai’s total transactions and salvaged an otherwise disastrous period.
Even Bengaluru and Hyderabad office market transactions fell by 42 percent and 43 percent respectively. Supply levels that were expected to stage a comeback this year fell by 27 percent YoY.
6.3 mn sq ft office space surrendered by occupiers back to the landlords
The outbreak of the COVID-19 pandemic and the subsequent lockdowns since March 2020 have had an adverse impact on real estate business in India. All India office market completions have dropped by 31 percent YoY in the first half of 2020 whereas transactions recorded a 38 percent YoY fall. Further, on account of the present market uncertainties and lockdowns, office space presently occupied is being surrendered by occupiers across cities.
The Mumbai and Chennai markets saw the most supply come online during the first half of 2020 accounting for 40 percent of the total 17.3 mn sq ft delivered during the period. As in the case of transactions, the steepest fall in supply was also seen in the NCR and Pune markets at 86 percent and 87 percent YoY respectively.
The comparatively steep fall in transactions compared to new completions caused the vacancy level, of the eight markets combined, to move up significantly from 12.7 percent in the first half of 2019 to 14.1 percent in the first half of 2020, the report said.
Also, adding to the vacancy was the approximately 6.3 mn sq ft of office space that was surrendered by occupiers back to the landlords as revenue disruptions caused by the pandemic forced them to cut costs and focus their financial resources on surviving these testing times, the report said.
Bengaluru accounted for almost 56 percent of the space surrendered during the first half of 2020. Kolkata and Ahmedabad which are the smallest and relatively less established markets among the eight under review saw vacancy level jump the most, by 9 and 8 percentage points YoY respectively to 41 percent and 42 percent by the end of first half of 2020.
Rents dropped sharpest in NCR and Ahmedabad at 8.8% and 12.1% year-on-year
While the demand momentum that sustained till the first quarter of 2020 supported the growth in rentals, the lack of transactions in the second quarter of 2020 did not impact weighted average rentals significantly. Weighted average rental for the eight cities under coverage thus grew 4 percent YoY in the first half of 2020 to Rs 83 per sq ft per month.
The weighted average rental level was also kept buoyant by the fact that the most rental growth which was seen in the Bengaluru market at 5.6 percent YoY also experienced the most transaction activity during the period, the report said.
Rents dropped the sharpest in NCR and Ahmedabad at 8.8 percent and 12.1 percent YoY respectively.
All sectors witness decline in transactions
All sectors saw substantial YoY decline in the area transacted by them during the year.
The sectoral share of transactions remained comparatively intact. IT dominated 43 percent of overall transactions, followed by BFSI at 16 percent. Two sectors – co-working and other services got a share of 14 percent each. Manufacturing got a pie share of 16 percent.
As expected, there was different industry dominance in office transactions in every city. A significant 59 percent of the area transacted by BFSI sector companies was in Mumbai, while Bengaluru accounted for the highest share of the transactions executed by manufacturing and co-working sector companies at 45 percent and 39 percent respectively, the report said.
(Source: Moneycontrol)
