The Indian residential real estate sector was witnessing some sluggishness post the structural changes and policy reforms initiated since late 2016. Nonetheless, there was some amount of activity in the market, albeit supply and demand have not yet attained the previous peak of 2014.
However, the liquidity crisis since mid-2018 impacted the growth path of the sector significantly and by the second half of 2019 sales and launches were slowing down. Finally, it came to a standstill in March 2020 when the nationwide lockdown was announced to combat the rising contagion of coronavirus, according to a FICCI-ANAROCK report.
While the COVID-19 pandemic has impacted businesses across the world and the Indian residential real estate sector has also felt the heat, a few trends indicate that the sector is likely to emerge stronger in the years to come:
PRICES HAVE BEEN RANGE-BOUND
Weighted average prices across the top 7 cities have grown nominally at a compounded rate of 3% between 2012 and 2019. This has been less than the prevailing inflation rates and the growth in income which provides an opportunity for the home buyers to do bottom fishing.
LOW INTEREST RATES
Interest rates are at their decadal lows owing to a steep reduction in repo rates.
ALL-TIME BEST AFFORDABILITY
The ratio of the home loan payment to income has been reducing over the years. According to industry estimates, affordability for a mid-income apartment in Indian city will be at 27% in FY21, which is among the lowest in the last two decades.
LISTED DEVELOPERS’ SALES HOLD UP
While overall sales are on a decline, listed developers continue to do well, indicating that homebuyer preference is inclined towards better-organized players that now dominate the segment.
According to ANAROCK Research’s latest consumer sentiment survey, 62% of the prospective buyers prefer to buy a home from branded developers, even if it is relatively higher priced.
The developers are cognizant of the changing market conditions and have effectively controlled launches to not create an oversupply situation. This adaptability and agility to respond as per the market conditions will go a long way for the sector’s growth and stronger emergence in the years to come.
ABSORPTION TO SUPPLY RATIO
Amidst the slew of structural changes, policy reforms, and controlled launches, the absorption to supply ratio has improved from 0.69 in 2013 to 1.36 as of H1 2020. This is a good indicator of the sector’s emergence and growth in future periods.
THE GOVERNMENT HAS BEEN SUPPORTIVE
Last but certainly not the least, the government has been instrumental and supportive to ensure that the residential segment emerges stronger post-pandemic. In addition to lowering interest rates and infusing liquidity in the system, a few noteworthy actions taken by the government include:
# SWAMIH fund is in action: The Alternate Investment Fund (AIF) set up by the government in November 2019 with a corpus of Rs 25,000 crore has sprung into action and as per the latest update Rs 10,284 cr has been sanctioned which will aid completion of 71,559 homes across 101 projects. The projects are spread across a broad mix of metro cities and tier II-III locations such as Karnal, Panipat, Lucknow, Surat, Dehradun, Kota, Nagpur, Jaipur, Nashik, and Chandigarh. The last-mile fund provision under SWAMIH is proving to be extremely effective to clear stuck projects, says the report.
# Loan Moratorium permitted without affecting the credit profile. This provided much respite to the individual and corporate borrowers who were under constraint due to crisis in their employment.
# Loan Restructuring proposed with a higher debt to EBITDA ratio for the real estate sector (as per KV Kamath committee report, Sep 2020).
# RERA has invoked the Force Majeure clause for all project delays being impacted by the pandemic.
# The Maharashtra Government reduced the stamp duty of properties until March 2021. A few other states are likely to follow the suit.
# Affordable rental housing complexes (ARHCs) for migrant workers and urban poor under the PMAY scheme to provide ease of living. ARHCs have also been accorded infrastructure status that may enable raising funds at better rates.
The Indian residential real estate sector, thus, has undergone a series of transformations amidst the structural changes, policy reforms, liquidity crisis, and the latest COVID-19 pandemic. The sector has been resilient and has emerged stronger.
With a host of factors such as excellent affordability, low home loan rates, controlled launches, organized players doing well, and the government’s incessant support, the future of Indian residential real estate sector looks bright.