India’s Resilient Realty

India’s real estate sector, which had been facing rough weather for the past 2-3 years, was dealt a crippling blow by the Corona pandemic. However, despite the onslaught, the sector has shown great resilience and is on the path to recovery.

Vinod Behl
The magnitude of the hit that the real estate sector got due to a weakening economy, following the Corona induced lockdown, was evident from the depressing data in H2, 2020, especially the June quarter. According to Anarock Property Consultants, the resident segment saw sales declining by 49% in H1 2020, in comparison to H1, 2019. It was 37% lower than the previous trough of H2, 2016. The year 2020 saw a half yearly decline of 56% in new launches.

The commercial real estate (office realty supply) was expected to go up this year. However, due to the pandemic disruption, it too was severely hit. As per Knight Frank India, the office realty segment witnessed a decline of 27% to 17.3 msf in H1 20. The NCR and Pune markets, respectively, saw the sharpest fall of 86% and 87%. The office leasing dropped by 37% yoy to 17.2 msf - the lowest in a decade. Transaction activity fell 79% yoy during the Q2 period.

The retail segment was the severest hit due to closure of shopping malls for several months. Multiplexes, the major revenue driver, were shut for an even longer period, badly hitting mall revenues and the mall space supply was also badly hit.

But with the pick-up in economic activity post June quarter, the depressed real estate started to look up. Consequently, the office market saw an improvement over Q2. According to JLL India, the office market witnessed a net absorption of 5.4 msf in the quarter ending September, registering an increase of 64% over the June quarter. Bangalore and Hyderabad led this growth. Prestige Estates, which leased 17 msf to Accenture, OLA Technologies, and an electronic giant, is upbeat about more demand for office spaces in the coming months.

Housing, the major segment of real estate, also saw a significant rise in demand, especially September onwards, with the onset of the festive season. Cash-starved builders resorted to aggressive marketing to push sales to cut down the unsold inventory. Developers came up with attractive payment plans, subvention schemes, deferred payments, and EMI holiday offers. Some offered to pay interest on home loans till possession. There were attractive deals and discount offers to lure prospective home buyers. NCR builders resorted to a property swap scheme (to home buyers of stalled projects) as an option to own a new property.

Lowest interest rates and stamp duty cut by Maharashtra and Karnataka further helped fuel sales. Residential sales in Mumbai increased 36% yoy in October, surpassing pre-Covid levels. The month also saw the 4th highest monthly sales in terms of volume and value.

Many developers took to digital marketing – a move that paid rich dividends. The Prestige Group reported residential sales of `1123 crore of 1.77 msf of built-up area, doing exceedingly well in October-November as well. The Sobha Group, according to its Vice Chairman & MD, J C Sharma, H2 FY 21 will be better than H2 FY 20, when the company did roughly 1.9 msf of new space in volume terms. In value terms, the Group is ahead of what it achieved last year; in H1 FY 21 it did about 1.54 msf.

Leading property consultancy Anarock sold a record 1805 homes during the September-October period, up 78% yoy against sales of 1016 homes in the corresponding period in 2019 across top 9 cities in India, besides Dubai. MMR registered a 116% yearly rise with 573 units sold, followed by Bangalore registering a 76% jump. NCR saw sales of 333 units against 260 units last year. NCR-based real estate marketing company, Square Yards, successfully clocked Rs 225 crore of sales during Diwali this year

According to leading Institutional Channel Partner, 360 Realtors, there is a steep jump in home sales (on a monthly basis) in most major markets like NCR, Pune, MMR, Bangalore, Kolkata, Lucknow etc. NCR-based marketing company Square Yards clocked `225 crore of sales during Diwali. Property Consultancy Anarock marketed residential properties worth `102 crore during Diwali, surpassing last year’s sales during the same period. Ankit Kansal, MD, 360 Realtors, attributed the spurt in residential sales to improved affordability.

Says Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman, Assocham National Council on Real Estate, Housing & Urban Development, “Affordable housing contributed significantly to the pick-up in residential sales. Home purchase affordability rose this year with home loan rates dropping below 7%; more than offsetting the adverse impact of low incomes due to the Corona onslaught. The desire to be in the safe environs of our own home during the Corona lockdown also helped boost home sales. The growing concept of Work From Home (WFH) generated demand for bigger homes. Buyers would not mind going to the suburbs of big cities or even moving to tier 2-3 cities to maintain home affordability. Also, because of social distancing norms, demand for plotted developments went up.

A pick-up in the sales of luxury housing (which was also massively hit), came as a pleasant surprise. “Demand for super luxury (`15-20 crore) homes gained traction. This could be attributed to the reason that the inventory in this segment is mostly ready-to-move, which buyers of super luxury homes prefer,” says Anuj Puri, Chairman of Anarock.

Despite these positive developments, the moot question is whether the real estate recovery will be sustainable in the months ahead. Several challenges remain on the realty horizon. The unsold home inventory has increased due to the pandemic. According to Liases Foras, at the end of FY 20, it took 15 quarters to clear the inventory, which increased to 19 quarters by H1 FY 21. Financially weak and small developers faced difficulty in raising capital at reasonable rates. Despite the debt restructuring announced by the RBI, many found themselves unable to avail it, and developers saddled with huge debts were burdened with debt servicing. On top of that, a marginal increase in unsold stock did not help in improving the cash flows. Further, there is still uncertainty about controlling the Corona spread and the associated risks to the economy.

However, what is reassuring is that promises outweigh pitfalls, raising hopes that the real estate recovery will sustain in 2021. Ankit Kansal is positive that rise in home sales would continue beyond the year end, neutralizing the demand slump triggered by Covid-19. There could even be a significant rise in new launches. Godrej Properties, for instance, has a pipeline of 22 projects till March 2021. Developers are confident that the Finance Ministry’s decision not to impose additional tax liability on buyers and sellers for transactions with price difference of up to 205 in circle rates and market rates, will help keep the sales momentum going. The stamp duty cut by Maharashtra till March 2021 will be another propeller.

There is a positive sentiment in the real estate market of stable and even declining property prices. An all-time low interest rates and zero GST on ready-to-move homes with just 1% on affordable homes, will boost sales. Keki Mistry, VC & CEO, HDFC, says that the lower interest rate regime will continue for another 2-4 quarters, providing a good home buying opportunity. Ridham Desai, MD, Morgan Stanley India, opines that realty and infrastructure will do well with government push as the stimulus finds its way into real economy – which appears to be playing out.

Ramesh Nair, CEO & MD, JLL India, who is positive on the growth prospects of the real estate sector, says: “The growth prospects in 2021 look brighter. Residential sales in the affordable and mid-segment is expected to show the fastest turnaround. Office real estate should also be leading the recovery, along with the promising alternate asset class of warehousing.”

The APAC Capital Market Forecast by Knight Frank India also points to a stable run for commercial real estate. Says Shishir Baijal, Chairman & MD, Knight Frank India, “The prime industrial sector was the biggest beneficiary, with a spurt in e-commerce, pushing the demand for warehousing. And considering that office space demand came back in the July-September quarter, though short of the pre-Covid level, office space could remain strong in the new year.”

On the residential front, Anuj Puri expects the top 7 cities to cumilatively record a 35% jump in housing sales in the October- December festive period, against the July-September quarter. “If this pans out, housing sales in the whole of CY 2020, will have rebounded to more than 50% of the overall sales of 2,61500 units. Comparing housing sales on q-o-q basis in the whole of 2020, overall industry-level sales are likely to rebound to nearly 90% of the pre-Covid level (Q1 2020) in Q4, 2020,” he adds. Clearly, real estate will be on a rejuvenated path in 2021.

The writer is Editor, PropTOQ – a real estate magazine