Indian Residential Real Estate – Highlights of 2021 | AFN News
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Indian Residential Real Estate – Highlights of 2021
Posted on December 20, 2021
We entered 2021 with caution and anxiety as the pandemic still raged across the world – and the situation in India was no different. 2020 was a difficult year for the Indian residential market because the 1st wave of the pandemic brought everything to a halt.
Nonetheless, all industries – including the real estate sector – emerged from national lockdown in 2020 with a valuable sense of resilience, damage mitigation skills, and a new way of looking at the business environment – especially in terms of business environment. adoption of technology.
As such, confidence at the start of 2021 was high and real estate developers as well as brokerages were well prepared to deal with possible future disruptions.
In 2020, 1.28 lakh units of new residential supply were added in the 7 main cities of India, while sales were recorded at 1.38 lakh units. Compared to the previous peak in 2014, supply was down by 77% and sales by 60%. This large-scale decline indicated that the Indian residential market had bottomed out in 2020 and was likely to enter a long-term bull cycle from 2021.
A review of the overall performance of the Indian residential real estate market in 2021 shows a clear recovery. Between January and September 2021, 1.63 lakh units of new residential supply were added in the 7 main Indian cities – 27% more than the supply for the year 2020 – and 1.45 lakh units were sold – 5 % more than in the whole of 2020.
While this represents a cumulative trend, the return of India’s residential real estate sector after the second wave of Q2 2021 has been phenomenal, in a sharp V shape.
Supply Q3 2021 – 64,500 units, 1.8X from Q2 2021
Q3 2021 sales – 62,800 units, 2.6X from Q2 2021
India’s real estate industry has transformed dramatically in recent years and the pandemic has accelerated the transformation.
- Digital Adoption: In just 90 days, we are 10 years ahead of digital adoption by consumers and businesses. Real estate has become a primarily digital sector.
- Fork-Linked Price Increase: Unlike before, developers are now raising prices in a disciplined manner, primarily to offset increased input costs. They realize that any unwarranted price hikes will deter the cycle of demand. Between the third quarter of 2021 and the third quarter of 2020, prices only appreciated by 3%.
- Mainly End-User Focused Market: 80-85% of homebuyers are now end users and investors have more reasonable ROI expectations.
- Larger homes are in demand: Over the past two years, demand has shifted towards homes large enough to accommodate the new realities of WFH and online education, and the average size of new unit launches increased by 26%.
- General Requirements: Besides apartments, a huge demand for plot and villa developments has led many developers to focus more on the non-apartment segment.
- The luxury and ultra-luxury segment has performed well, as the net worth of the luxury offerings target group has not been severely affected by the pandemic. These buyers entered into transactions proactively to take advantage of market conditions (moderate demand, reduced stamp duties, developer discounts).
- Villas, farms and second homes were in demand as buyers sought to purchase properties with greater social distancing and lower infection risk in less populated and greener environments. Plus, with the WFH being the new standard, people could work from anywhere.
- The outskirts saw increased traction with over 60% of launches in remote suburbs.
- Structural reforms and policy changes have been entrenched in the Indian real estate sector.
- Consolidation – Almost a third of the total residential area is now sold by large listed and unlisted players. Only developers with the right financial strength, brand name, execution history and corporate governance will experience future growth and success.
- Inflows of global funds – for example, Goldman Sachs plan to revert to Indian real estate with an investment of $ 2-3 billion.
- Perhaps the most important climax of 2021 for the Indian residential real estate market was that activity has not stopped despite the 2nd wave of the pandemic. This indicates that the steep learning curve induced over the past two years of the pandemic has led to superior business practices – and a stronger housing market overall.
Real estate stock rally
In 2021, we have seen a rise not only in real estate stocks, but the broader market as well. Plentiful liquidity has targeted the equity markets on the basis of satisfactory return on investment expectations. The arrival of the Omicron strain towards the end of 2021 has somewhat slowed this movement; However, the medium to long term outlook remains very positive as COVID-19 has been largely contained in India and most businesses are back on track again.
Overall, real estate stocks exploded in 2021, with developers seeing good sales and actively launching new projects. After the 1st wave, the recovery of the real estate sector was pronounced and improved further after the 2nd wave as the sector absorbed new learnings to overcome the challenges.
In a visible mode of consolidation, the sector now has major players holding a significant share in overall home sales. The demand for housing remains high as Indians continue to spend a lot of time at home due to WFH and remote working. In addition, macroeconomic conditions are supporting home purchases, with mortgage interest rates at their ten-year low (from 6.5%) and the overall jobs scenario looks secure enough to support long-term financial decisions.
The positivity around physical indicators such as new launches and sales is reflected in the stock markets.
The S&P BSE Realty Index (the general indicator of the performance of real estate stocks) was at 1,423 on March 27, 2020 (just after the announcement of the national foreclosure). As of January 1, 2021 it was at 2,501 and by mid-December 2021 it was at 4,028. The phenomenal dynamics of the overall real estate market are clearly visible in the movement of the index.
Top Rated Developers Achieve Record Sales in 2021
Top rated and unlisted developers with good corporate governance practices, financial responsibility, trust, and brand had very good sales. There is a clear trend emerging that home buyers are willing to pay a reasonable premium for products offered by reputable players.
Some numbers :
- Brigade Entreprise LtÃ©eSales reservations of. increased by 59% to reach 1,310 Cr INR from April to September 2021.
- Properties of Godrej ‘ sales bookings jumped 18% to 3,072 Cr INR in April-September 2021
- Prestige Group Sales bookings in the second quarter of fiscal 22 increased 88% year-on-year to INR 2,112 crore.
- Lodha properties sold worth INR Cr 3,000 in April-September 2021; on track to meet the INR Cr 9,000 target for FY22.
- Sobha reached the best selling value of INR Cr + 1,700 in April-September 2021.
Best performing segments of 2021
With the WFH and online schooling as the new normal, there was a high demand for larger homes and hence the mid-range (units priced between INR 40-80 lakh) and high-end ( units priced between INR 80 lakh and INR 1.5 Cr) did well. In total, around 65% of the supply between January and September 2021 came from these segments.
According to ANAROCK’s latest consumer sentiment survey, there has been a marked increase in the preference for properties priced above INR 90 Lakh. In Wave 1, 27% of respondents preferred properties priced above INR 90 Lakh, which rose to 38% in Wave 2.
The luxury segment, which is a value-not-volume game, has also performed well this year, with buyers in this segment looking to close deals at lucrative valuations.
The affordable housing segment, on the other hand, slowed in 2021 because;
Significant addition of supply (~ 1.7 lakh units) from 2019 to Q3 2021 (1/3 of total number of new launches). As a result, developers have reduced the supply of affordable housing to take stock and focus on execution rather than adding new projects.
An affordable housing development is a long gestation, a low margin – a high volume of business – and under current market conditions, developers envision rapid execution and exit.
COVID-19 has impacted the livelihoods of affordable segment home buyers, resulting in reduced demand.
With the Omicron variant of COVID-19 not having a serious impact on India as the Delta strain and market conditions improve, the affordable housing segment will pick up in the coming quarters. The government continues to focus on the affordable housing segment and is doing its best to stimulate demand through tax incentives for developers as well as buyers.
Outlook for 2022
The Indian residential real estate market appears to have entered a long term bull cycle, and 2022 is very likely to fare better than 2021. With COVID-19 now having become a more accepted part of life and Indians getting used to the new normal, companies seek to grow. Compared to 2021, the residential real estate market in 2022 will experience less volatility.
Some notable major trends:
- New supply and sales could reach 2019 levels by next year, i.e. 2022.
- Interest rates could start to rise from the second half of 2022.
- Prices can appreciate between 5 and 10%
- The industry will organize more and the share of large players will increase – Category A and organized developers will continue to dominate and capture more market share from smaller, unorganized players.
- The mid-range and high-end housing segments will continue to generate the majority of demand.
- Investments in PE in the residential segment continue to increase. The share of the residential segment in PE investments has already increased to 22% in the first half of FY22, compared to 14% in the same period last year.