Report Suggests That Residential Units Under One Crore Gains Momentum

Even though the overall performance of the Indian real estate segment is muted, sales of units under Rs 1 crore have witnessed a remarkable momentum, revealed a report by credit ratings agency ICRA.

Developers are acknowledging the trend of increase in the sales of units and are reconfiguring or designing new launches with a focus on lower unit prices.

Steady buyers are also opting or giving preference to developers with timely deliveries, the report said.

The sales value of the area booked increased in Q3 FY2020 to Rs 5,980 crore from Rs 5,492 crore over the same period a year ago, posting a growth of 9 per cent, the report said, adding that the average ticket sizes witnessed a downtrend.

Launches in the recent past have largely been focused on the 1,200-1,500 sq feet per unit range, with an average price of around Rs 7,000 per sq. feet, maintaining ticket sizes within the Rs 1 crore.

Assistant Vice President and Associate at ICRA Mahi Agarwal said “right-sizing” and “right-pricing” has given a fillip to the prevailing market consolidation.

She said this has been attributable to preference of homebuyers for products from established developers with a track record of delivery and “industry-level structural changes that have taken place in the form of RERA, GST and IBC.”

“The larger listed players have witnessed robustness in sales levels, followed by a corresponding reduction in unsold inventory,” she added.

The report said that the transition in demographic profile of cities, buoyed by rise in urbanisation and inward migration, has been the key to this demand in the lower size housing segment. A large number of developers are acknowledging this trend.

Both existing phases and new launches are being reconfigured and redesigned with a focus on lower unit prices.

The report said that big players in the realty sector are better positioned to carry out the strategic realignment.

As per ICRA’s sample set of 10 large listed companies, the area sold by entities during Q3 FY2020 stood at 8.57 million sq feet. The sales in the past few quarters have been constant at an average of 7.5-8.5 million sq feet which indicates steady buyer preference for reputed developers with timely deliveries.

The report said that the pace of launches in the last two quarters of FY2019 was particularly high. After that, however, there has been a bit of stabilisation in launch velocity that has moderated to 3-4 million sq feet per quarter. This along with steady sales levels has resulted in a decline in inventory holding.

Over the past five quarters, the quarters-to-sell (QTS) has also witnessed a downward trend, slipping to 7.6 quarter in Q3 FY2020 from 9.4 quarter in Q3 FY2019, the report stated.

Agarwal said that the creation of the Rs 25,000 crore last mile fund as well as the recent announcements by the Reserve Bank of India (RBI) related to extension in Date of Commencement of Commercial Operations (DCCO) are expected to strengthen project deliveries.

“The reduction in requirement to maintain cash reserve ratio by banks is expected to provide a boost to the home loan availability and might impact the demand positively,” Agarwal added.