Residential market displays better than expected recovery in Q3: Knight Frank India

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October 8, 2020 4:19 PM

Home sales volume has jumped by 2.5 times to 33,403 units in Q3 2020 compared to 9,632 units in Q2 2020, while new residential unit launches increased by 4.5 times to 31,106 units in Q3 2020, compared to 5,584 units in the previous quarter.

While the overall real estate sector dynamics continue to remain strained, there has been a meaningful improvement in sales and launches in Q3 2020.

Displaying a better than expected recovery in Q3 2020, the residential market has shown a meaningful improvement in sales and launches in Q3 2020. For instance, home sales volume has jumped by 2.5 times to 33,403 units in Q3 2020 compared to 9,632 units in Q2 2020, while new residential unit launches increased by 4.5 times to 31,106 units in Q3 2020, compared to 5,584 units in the previous quarter, according to a Knight Frank India Q3 report on real estate.

In fact, Chennai, Kolkata and NCR have shown substantial recovery after near negligible volumes seen in Q2 2020, while sales in Mumbai, NCR, Pune, Chennai and Kolkata have reached or exceeded 50% of the 2019 average. Also, Mumbai, Bengaluru and NCR accounted for 56% of the quarterly sales volume during Q3 2020 compared to 62% in 2019, primarily due to a fall in Bengaluru’s share in total sales for the period.

As per the report, the COVID-19 induced lockdowns across the country had caused sales and supply volumes to plummet in the second quarter of 2020. The beleaguered residential market, dogged by a liquidity crunch and weak demand, now also had to contend with extreme supply chain disruptions, spike in construction material costs and large scale labour shortage following an exodus of workers from cities to their home towns.

While the overall real estate sector dynamics continue to remain strained, there has been a meaningful improvement in sales and launches in Q3 2020. Home loan rates at a multi-decade low of sub-7%, fall in residential prices, aggressive marketing of ready inventory and indirect discounts / freebies to the buyers have helped move the demand needle in Q3 2020.

There has been a leveraging of online channels and innovative financing options by developers to attract buyers. Limited period stamp duty cut by a significant 300 bps also helped buoy consumer sentiments and helped sales in markets like Mumbai and Pune. The extension of moratorium on loan installments and partial return of construction labourers to project sites have also helped developers progress on project completions.

Market traction in the third quarter has been heartening as both sales and launches for the eight markets under review, rebounded sharply from their lockdown lows. In Q3 2020, for the eight cities under review, launches have grown by four-and-a-half times and sales by two-and-a-half times compared to the second quarter of 2020.

Knight Frank says that assessing market performance over a single period could skew their understanding in such volatile times, so comparison over a longer period is warranted. A comparison with the quarterly average sales in 2019 shows that the total sales of the eight markets under review during Q3 2020 have reached 54% of the 2019 quarterly average level. Similarly, residential launches in Q3 2020 have improved to 56% of the 2019 quarterly average.

The reluctance of prospective homebuyers to make a long-term financial commitment to a residential property in the current uncertain economic scenario has been the single largest factor affecting demand over the past few months. However, it has been observed that conversion rates across markets have improved as an increasing number of discerning buyers took advantage of low financing costs and a stronger bargaining position in current times.

Weighted average prices have reduced in the range of 3-7% in six of the eight markets during Q3 2020 compared to a year ago. Bengaluru and Hyderabad are the only markets that saw prices grow on YoY basis as developers in these predominantly end-user markets sustained pricing power in a favourable demand-supply scenario. Homebuyers are more inclined to acquire ready or near-ready inventory to minimise completion risk. This is reflected in the average age of inventory staying at 16.9 quarters in Q3 2020 compared to 16.2 quarters in the year ago period. This is also in line with developers focusing on liquidating older inventory before launching new products which has helped marginally reduce unsold inventory levels to 0.44 mn units in Q3 2020, 1% less than a year ago.

“We believe the residential market has displayed a better than expected recovery in Q3 2020, given the macro-economic challenges and resumption of lockdowns in July that have impacted every sector directly and indirectly. However, developers’ cash flows remain under tremendous pressure despite the extension on loan moratoriums and RERA completion deadlines. The festival season in the next quarter will be crucial for developers and should provide some fillip to sales,” the report states.

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