Housing sales across the top eight cities of India have rebounded in Q2, indicating some green shoots of normalisation.
In terms of ticket size, the affordable and mid categories have remained the highest contributors to sales, followed by the upper-mid segment.
Post a severe decline in Q1 FY2021, the housing segment has witnessed a sharp recovery in Q2 FY2021. Sales across the top eight cities of India rebounded in Q2, indicating some green shoots of normalisation.
As per an ICRA note, the recent improvement was primarily driven by a gradual unlocking of the economy, pent-up demand; and improved affordability on the back of reduced home loan rates and attractive payment schemes/discounts. The uptick in absorption levels during Q2 FY2021 has also been driven by the affordable and mid/upper-mid segments, indicating the higher resilience of these segments to the demand headwinds currently prevailing in the residential realty market.
The Covid-19 pandemic in fact had triggered one of the worst demand crashes that the Indian residential real estate industry witnessed in recorded history. Overall the housing sales volume witnessed a Y-o-Y decline of 50% in H1 FY2021 across the top eight cities of the country. However, sales volume bounced back considerably with a Q-o-Q growth of 60%, recorded across property markets in the second quarter of the current fiscal.
Commenting on the positive trend, Shubham Jain, Senior Vice President and Group Head at ICRA, said, “An increasing focus on home ownership, both from domicile residents as well as the NRIs, has been aiding sales. Reverse migration has further supported an increase in housing demand in tier II/III cities. Notably, increasing digitisation has played a key role in enabling sales in the current environment, with extensive use of digital marketing and digital engagement tools by the developers aiding online home sales and transaction payments. The crisis has thus pushed the sector towards widespread technology integration.”
Buyer preferences for rightly priced inventory at advanced stages of construction continued to be in place, although larger format units seemed to be finding increasing favour, possibly due to the requirement for dedicated work and study areas. While quarterly average sales for under-construction units registered a decline of 78% during H1 FY2021, a significantly lower decline of 29% was noted for advanced stage/completed projects.
With the higher pace of recovery for advanced stage/ completed inventory, this segment contributed to over half the Pan-India sales generated in Q2 FY2021. This preference, combined with the significantly higher supply of under-construction units vs. advanced stage units is expected to pose challenges for developers having a high dependence on sales from under-construction inventory. However, demand for under-construction units will remain supported to some extent by buyers preferring staggered payment, parallel plans of liquidating other holdings, etc.
In terms of flat formats, 1.5/2 BHKs have traditionally remained the highest contributor to supply and sales, followed by 2.5/3 BHKs. While the sales mix remains similar post Covid, the absorption level for 5BHK and other large formats has increased significantly in Q2 FY2021. This is possibly due to increasing preferences for dedicated work/study areas and second/holiday homes, due to expected changes in working and living styles going forward.
Increased demand from NRIs on the back of returns to the homeland may also have supported the trend, as such buyers typically opt for larger format flats, and the current depreciation of the rupee, together with attractive deals, would have supported their purchasing power. Demand has also increased considerably for 1BHKs, primarily supported by first-time home buyers, thus reflecting the growing importance of owning a flat.
In terms of ticket size, the affordable and mid categories have remained the highest contributors to sales, followed by the upper-mid segment, both pre and post the onset of the pandemic, primarily on the back of low ticket sizes and a high level of government incentives.
Overall, in terms of geography, MMR, Pune and NCR remained the highest contributors to pan-India sales in Q2 FY2021, in line with the past trends, given the high level of marketable supply available in these markets. However, the extent of recovery and the absolute level of absorption remained amongst the lowest for the over-supplied MMR and NCR regions. Thus, the high inventory overhang in these regions remains a concern, with liquidation of the same amongst heightened demand risks likely to witness challenges.