Lesser impact of the second wave of the pandemic on residential real estate sales; recovery likely in the latter part of the 2022 financial year: ICRA | AFN News
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Lesser impact of the second wave of the pandemic on residential real estate sales; probable recovery at the end of 2022: ICRA
Posted on September 2, 2021
- Covid-19 disrupted sales of residential properties in the first quarter of fiscal 2022, with area sold in the eight main cities dropping from 84.7 msf in the fourth quarter of fiscal 2021 to 68.5 msf in the first quarter of fiscal year 2022
- Nonetheless, the underlying demand drivers remain intact and sales are expected to return to pre-end FY2022 levels, similar to the recovery seen in the second half of FY2021.
Sales of the residential real estate sector in the country’s eight major cities in the first quarter of fiscal 2022 fell 19% to 68.5 msf from 84.7 msf in the fourth quarter of fiscal 2021 due to the second wave of the pandemic. The sequential decline of 19% comes on a strong basis in the fourth quarter of fiscal 2021, in which the sector recorded its second highest sales since fiscal 2012. However, residential sales more than doubled compared to sales of 33.7 m² recorded in the corresponding quarter of the previous year, the first quarter of fiscal year 2021. According to the ICRA analysis, with the increased focus by the government on vaccination and reopening economy, unlike last year, sales are expected to return to their previous levels in the short to medium term. This is due to the fact that despite the significant disruptions in the first quarter of fiscal 2022, the underlying trend in demand has remained intact, driven by factors such as low interest rates over several years, the demand for more residential space due to the shift to the hybrid work model and the rising demand. These factors had supported a healthy recovery in sales in the second half of fiscal 2022, with the recovery aided to some extent by concessions on stamp duties and other incentives provided by some state governments.
Shedding more light on the trend and outlook, Kapil Banga, Sector Head and Deputy Vice President at ICRA, said: “The impact of the second wave was less than that seen in the first wave due to a variety of factors, including the continuation of work from home by many salaried employees, more localized foreclosure restrictions and a greater degree of certainty. high regarding future income levels and stability. In particular, the IT / ITES sector experienced strong financial performance with an increase in hiring, which supported the demand for employees in these sectors. The preference for larger and better housing also supports purchases of second homes which had remained low in previous years. Although the second wave damaged the market after a good recovery curve in the second half of fiscal 2021, a similar recovery curve is also expected in the second half of fiscal 2022. “
CIFAR further notes that homebuyers have looked at a completed inventory and towards developers with a proven track record of on-time project completion and quality. This led to an increase in the market share of the nine main listed real estate players, from 6% of sales in 2017 to more than 16% in 2021. The long-term trend of market consolidation, which results from the evolution consumer preferences, as well as a sustained increase in the market share of large developers among recent launches, is expected to continue and will foster further improvement in the market share of larger and stronger developers.
Sales Trend – The Top Eight Cities
Source: Liases Foras, ICRA Research
Sales Trend – Key Developers Listed
With the resurgence of the second wave of Covid-19, housing inquiries and site visits fell in the top eight metropolitan cities and new housing project launches fell by more than 12% in QoQ; nevertheless, launches were tripled compared to the corresponding quarter of the previous year.
Additionally, on a QoQ basis, excess inventory has increased due to the impact of the pandemic. The unsold stock stood at 1057 msf in June 2021 and with the current selling speed it will take 3.9 years to sell the unsold stock, an increase from years of sale (YTS) of 3.2, according to the sales speed of the fourth quarter of fiscal 2021.
Trend of unsold stocks by city and years for sale in the top eight cities
Source: Liases Foras, ICRA Research
With construction impacted to some extent and lower sales for the top nine listed players, collections were also impacted, recording a 27% quarter-on-quarter decline. Also, extending RERA timelines in some states from six to nine months as well as reducing construction approval costs / premiums etc. provided by some states for a limited period made it possible to postpone outings in the event of poor collections. Thus, despite the moderation of collections, the operating cash flow of the major promoters has not experienced a sharp decline. However, declining market share and the cautious approach to NBFC / HFC lending can create a difficult operating and funding environment for small developers in the short term. While large, organized players have maintained sizable cash reserves and have better cash flow adequacy ratios, as well as high financial flexibility, smaller players would find it difficult to cope with existing market conditions.
concludes Mr. Banga, “Door-to-door inquiries increased after June 21, while the drivers of fundamental demand remain intact with the gradual recovery in economic activity after Wave 2 and would serve as key catalysts for the recovery in sales in the industry. residential real estate. As large developers resume the launch of new projects, which had been temporarily impacted in the first quarter of fiscal 2022, their share of sales should continue to improve in all residential property sales.