Residential real estate bounces back and heads for consolidation
IN MUMBAI, India’s largest residential real estate market, 8,576 homes were sold in October, the highest for that month in a decade. November looks like it’s going to be just as good: 1,441 properties were registered in the first week of the month, according to real estate consultancy Knight Frank India.
The past six years have been tough for the residential real estate industry. Demonetization, disruptions caused by the Real Estate Regulation and Development Act and the Goods and Services Tax and a liquidity crunch have caused demand for housing to plummet. The pandemic was the final blow. Inventories have piled up and developers have held back new launches.
The hard times, however, now seem to be over, with buyers returning to the market. As the prices are stable, it continues to be an excellent market for buyers. The biggest draw, however, is the historically low interest rates. During the pandemic, central banks around the world cut interest rates and pumped money into the system. The Reserve Bank of India cut the repo rate (the benchmark rate it lends to banks) to just 4%. The banks, in turn, cut their rates. Some banks are currently offering home loans at 6.40% interest.
“A healthy environment fostered by low mortgage interest rates is expected to continue as the RBI kept its key rates unchanged for the eighth consecutive time in early October,” said Shishir Baijal, Chairman and CEO of Knight Frank India .
Home sales in the July-September quarter in India’s eight largest cities jumped 92% year-on-year to 64,010 units. This was 104% of the quarterly average in 2019, indicating that sales are now above pre-pandemic levels. “The residential market is experiencing pent-up demand. The market will be even more buoyant thanks to favorable festive winds, complemented by favorable market dynamics such as low interest rates and sweeteners from developers, ”said Niranjan Hiranandani, CEO of the Hiranandani group.
The momentum is visible in all major markets. Mumbai saw its sales more than double year-on-year to 15,942 units in the September quarter, according to Knight Frank India. In Hyderabad, sales more than tripled to 5,987 units. In Bengaluru, sales jumped 131% from a year ago to 11,337 units. Sales increased 94 percent in Pune, 75 percent in Kolkata and 48 percent in the National Capital Region. In Calcutta, 6,861 units were sold in the third quarter, 244% more than the 2019 quarter average.
“The way the market has rebounded is better than before Covid,” said Rajeev Ramaswamy, deputy general manager of Sreevatsa Real Estates. “Last year’s lockdown made people realize they needed more space. So people now have specific requirements. Young families with children, for example, seek larger accommodation.
Over the past year, a few states have announced measures that have helped boost demand. West Bengal, for example, announced a 2% rebate on stamp duty for property registrations made between July 9 and October 30, 2021. “We have seen green shoots of recovery throughout the state and in eastern India at large, ”said Harshavardhan Neotia, chairman of the Calcutta-based Ambuja Neotia group. “Projects like condominiums or integrated townships are in high demand as facilities like a gym, recreation, parks, gardens and daily essentials are all located on the company’s premises,” he said. he declares.
Demand for larger housing is expected to continue. “We are incorporating a higher percentage of larger units / additional bedrooms into our product line and configurations,” said Pavitra Shankar, Executive Director, Brigade Group.
As sales improved, developers stepped up project launches. Real estate consultant JLL says 32,863 units were launched between July and September, up 21% from 27,057 from April to June. For comparison, 12,654 units were launched in the September 2020 quarter. However, these are still below the pre-Covid January-March 2020, when around 40,500 units were launched. The emphasis is on destocking and aligning launches with real market demand.
Hyderabad accounted for 31% of new launches between January and September 2021, followed by Mumbai (18%), Pune (17%), Bengaluru (16%) and Delhi NCR (10%), data from JLL showed. .
The pandemic has changed not only buying preferences, but also selling methods. Developers have invested heavily in technology, and customers can now view projects from the comfort of their homes in augmented and virtual reality. The developers have also streamlined online home buying platforms. JLL expects digital marketing to become the industry’s primary channel for generating leads.
However, there are also a lot of challenges. The prices of key raw materials such as steel, cement, aluminum and copper have risen sharply this year, pushing up construction costs. Developers have not been able to pass them on to customers, fearing it could dampen demand. The shortage of skilled labor also adds to the costs. “As housing demand becomes imperative, developers are hoping for sustainable post-pandemic demand. The strong pressure of escalating costs will eventually trickle down to the consumer, ”Hiranandani said.
The pandemic has caused customers to shift their preferences to big brands and reputable developers. This should lead to a wave of consolidation. “Due to healthy balance sheets, access to capital and weaker developers who are excluded from the market, the market share of large organized developers is expected to increase further over the next two or three years,” said Adhidev Chattopadhyay of ‘ICICI Securities.
According to real estate consultant Anarock, the overall share of home sales by the top eight listed players rose to 22% in 2020-2021, down from just 6% in 2016-17. Large unlisted developers increased their share to 18% from 11% during the same period. “Organized and experienced developers will have the opportunity to take over backlogged projects through the JV / Joint Development route,” Neotia said. “The industry will also witness acquisitions of a portfolio of small business projects by larger developers.”
Not surprisingly, real estate stocks have been on a dream run. The NSE Nifty Realty Index hit an all-time high this year and is up over 100% in one year. While housing demand is only expected to accelerate, this bull run may be just the beginning of many.