Residential sales were down 5% yoy to 266 million square feet (sf) in FY20 across the top six cities in India.
The overall residential demand would decline over 25% yoy in FY21, after registering a fall of 5% yoy in FY20, due to the ongoing COVID-19 pandemic, believes India Ratings and Research (Ind-Ra).
A stable demand, combined with prudent launches by players, had restored some supply-demand balance over FY18-FY19. However, the COVID-19-related lockdown resulted in a rise of the unsold inventory levels to over 15 quarters at end-FY20. Of the six key markets, Hyderabad and Bengaluru had the least quarter to sell inventory while Chennai had the maximum unsold inventory, followed by the Mumbai Metropolitan Region as of FYE20, a report by Ind-Ra said.
Residential sales were down 5% yoy to 266 million square feet (sf) in FY20 across the top six cities in India. The National Capital Region has seen the maximum decline in FY20; while Bengaluru has seen a recovery, Hyderabad has continued with its strong growth momentum in terms of the area sold. Furthermore, the affordable housing segment (homes valued up to Rs 5 million), which grew steadily over FY17-FY19, has seen the maximum decline during FY20.
The residential sector continues to under-perform as an asset class, impacting the investor demand. Hyderabad is the only market which has shown a price CAGR of a high single digit, while the other markets have lagged behind with sub-par price CAGR of 1%-2% over the last five years.
Moreover, disbursements from housing finance companies and wholesale non-banking financial companies to the real estate sector declined steeply in FY20. However, there was a slight uptick in the last quarter in disbursements by non-banking financial companies, based on Ind-Ra estimates.
Grade-I residential players continue to generate strong sales due to the ongoing market consolidation. Pre-sales for the top 10 listed players grew about 7% yoy in FY20 to 32.3 million sf. However, the agency believes that the sales will be hampered until the ongoing COVID-19 situation stabilises, and thus cash flows for these players could also come under pressure.
A recent report by the Reserve Bank of India on Consumer Confidence Index and Future Expectations Index in May 2020 suggests changes in consumer sentiments and expectations of the Indian people. Ind-Ra expects a longer-than-expected time to recovery for the real estate sector, based on the steep drop indices in May 2020.