The increase in home purchase affordability has been one of the most important factors driving sales and paving the way for buyers to return to the market.
There has been a sequential growth of 51% in the residential sales during the last quarter of 2020, according to a report by JLL. While there is still a long way to go, the worst is behind for the residential sector.
The evolving COVID-19 pandemic has influenced short-term decision making with job security cited as the biggest concern when contemplating the purchase of a home. “In the second quarter of FY 2020-21 when the GDP showed higher than expected recovery, the housing market showed some initial signs of recovery, with sales increasing by 34% on a sequential basis. In Q4 2020, uncertainties around the economy and jobs started reducing, which led to an increase in the pace of recovery in residential real estate. New launches and sales across the seven key markets under review witnessed a significant jump,” said Dr Samantak Das, Chief Economist and Head Research & REIS, JLL.
Expectations from 2021
The challenges faced by the residential real estate in 2020 have become the catalyst in providing stimuli to the industry for sustained growth. With people spending more time at home, the lockdown re-established the importance of owning a house. Simultaneously, government initiatives to support the recovery by holding policy rates at historically low levels to initiate a cycle of consumption led growth. This has resulted in extremely low mortgage rates. Prices have also been stagnant for the past few years. This affordable synergy makes it a great time to purchase a home. Furthermore, the market is also witnessing renewed interest from Non-Resident Indians (NRIs) impacted by economic uncertainties in Europe and the Middle East.
“With economy picking up and employment witnessing stability, housing sale is expected to sustain the existing momentum for the year 2021. All segments, which includes luxury, premium, mid-segment housing, and affordable, will see renewed demand from the end users. With the property prices bound to go up because of the rising demand, investors are likely to come back to the market by last quarter of 2021. In short, residential business can look forward to a rounded growth with both supply and demand soaring,” said Siva Krishnan, MD & India Head, Residential Services, JLL India.
Changing homebuyer preferences and product metrics
A healthy lifestyle has become a key criterion for homebuyers, resultantly, preferences have tilted towards larger homes in self-contained complexes with facilities like gym, green open spaces, and access to daily necessities. Moreover, with work from home becoming a reality, product metrics are likely to change.
# Customization to suit buyer needs
# Apartment with balconies and open spaces to be preferred
# Increased importance of study rooms, good network and broadband speed as well as acoustics
Additionally, remote working practices are expected to increase the attractiveness of suburban markets. Suburban markets offer lower density environments and more spacious apartments at affordable rates. Since, travel to office may no longer be an everyday activity, the importance of connectivity to office hubs will no longer dictate home purchases.
Prominent residential developers will continue to adopt a digital first approach
The rapid adoption of technology in Indian real estate is expected to continue with the COVID crisis expediting the entire cycle. As physical interactions are restricted, there has been a significant change in the way activities are carried out.
# Digital marketing to become prime channel to market properties and generate leads
# Online construction progress monitoring
# Property videos will become a necessity instead of a luxury
# Use of VR in processes such as site visits and closure of deals
# Change in the way site visits happen; videos and virtual walk through to shortlist properties followed by site visits in the final stages of decision making
This uptrend is expected to continue in the times to come. While many may still be reluctant to make such a large purchase without physical site visit, the digital tools that were used in 2020 are sure to stick around throughout 2021.
Focus on affordable and mid-segments to continue
In 2021, a further improvement in sales across all housing segments is expected. However, development focus on mid and affordable segments is expected to continue. In 2020, more than 80% of the new launches were in the sub Rs 10 million category. Moving ahead, new launches will remain concentrated in these price segments with developers trying to reap the benefits of strong pent up demand in these segments. The government is also committed towards boosting affordable housing. The recent Union Budget has extended the benefit of additional interest deduction on home loans for first time home buyers in the affordable segment. Further, there is a time extension to claim the tax holiday on profits from affordable housing projects until March 2022.
Recovery in alternative residential asset classes
The organised shared housing market in India has seen the influx of several organised players in a bid to tap the opportunities arising out of the strong demand from a growing millennial workforce and student population. While the market took rapid strides in the past few years, 2020 brought the co-living and student housing sectors to a grinding halt. As migrant millennial workers move back to the major cities and higher education institutes resume physical classes, occupancy levels in organised setups is expected to go up and gradually return to 2019 levels by the end of 2021. There will be an increased focus on health and wellness aspects in the post-COVD era, which is expected to drive demand for organised co-living and student housing setups.
Moreover, senior citizens living alone were the most impacted during the pandemic. The role of organised senior living facilities, which are designed with senior friendly amenities such as medical support on call, services for food, housekeeping and assistance around the clock became more prominent during these trying times. This has increased the attractiveness of such facilities and demand for organised senior housing setups is expected to pick up in the near future.
Affordable synergy in the market makes it a great time to buy
The increase in home purchase affordability has been one of the most important factors driving sales and paving the way for buyers to return to the market. Residential prices have remained stagnant over the last five years while household incomes have witnessed steady growth.
Home Purchase Affordability expected to increase
Note: Figures represent scores on the JLL’s HPAI (Home Purchase Affordability Index); higher values indicate greater affordability
Source: JLL Research
In 2021, even if we assume residential prices in certain markets to move upwards, the mortgage rates are expected to remain at historical lows and annual household incomes will increase as the economy recovers. This will result in improved home purchase affordability, as evidenced by JLL’s Home Purchase Affordability Index. A combination of increased home purchase affordability and improved consumer sentiments will further lead to the translation of pent-up demand into sales.