Some initial green shoots have started to emerge in the real estate market and it is heartening to see that the cities of Bengaluru, Pune and Hyderabad are leading the turnaround.
As the real estate sector gears to get back to work post the nationwide COVID-19 lockdown, the industry is trying to adapt to a new normalcy. After a slew of reforms in the last three years, the industry had largely remained stable in 2019 and things had started to look up in 2020. Pre-COVID, our data suggests that 10 out of India’s 12 key residential markets observed positive market dynamics. But due to COVID-19, much of this momentum was lost.
As an immediate impact of the panic, we witnessed a price decline in the range of 2%-9% in all the 12 key markets in April. However, with the uncertainty settling down, the price decline in the April-June quarter seems to have been arrested with 1-5% decrease across Tier I cities. This is a good sign for both the industry and the demand, coming on the back of the government’s decision to lower the repo rates during the crisis. Since the lockdown, the central bank has cut the repo rate by 115 basis points, which would lead banks to soften interest rates on home loans and is expected to drive demand in the mid to long term.
Growth continues to remain challenging in the prominent markets of MMR (Mumbai Metropolitan Region), Delhi, Gurgaon, Noida-Greater Noida, and Pune due to a decrease in demand. However, the markets of Hyderabad, Bengaluru, and Chennai, which were already performing better in the pre-COVID-19 period, witnessed an inverse correlation between prices and demand. These three Southern cities saw high price declines, but also saw a higher share of consumers coming back to the market to look for attractive deals indicating robust underlying fundamentals on the demand side.
Our latest consumer sentiment also suggests that the buying intent in Hyderabad, Bengaluru and Chennai were somewhat less impacted compared to other markets due to the impact of COVID. Also, more than 50% of homebuyers in these markets seemed certain about the price movement in these markets due to the impact of COVID. So why do these three markets stand out?
Bengaluru: The residential market in Bengaluru has witnessed healthy growth with stable demand and supply balance. In the last five years, it has maintained a steady momentum with 17.7% and 33.3% growth in ready-to-move and the under-construction segment prices, respectively. However, the prices fell by almost 3% in the last quarter due to the COVID-19 outbreak. Promptly, the state government took corrective measures in the form of a reduction in stamp duty on properties of up to Rs 35 lakh. Many local developers have also enabled online booking facilities such as digital signature, online payment, virtual tours, and video conferencing to help in sales during the pandemic, which are expected to bring the consumers back to the market. Also, robust connectivity via the Outer Ring Road (ORR) and upcoming metro lines have propelled the growth of real estate in multiple areas of the city.
Chennai: The Chennai residential market saw a momentary dip due to the COVID-19 crisis but we also witnessed a rising demand for affordable housing along the major employment hubs during the April-June 2020 quarter. In the last couple of years, there has been an increase in the number of affordable projects by developers. The limited number of new launches have helped the sector to maintain the supply-demand balance. The development of industrial estate by SIPCOT is likely to bring more demand for real estate in peripheral areas. Improving connectivity via Chennai Metro, Chennai-Bengaluru infrastructure corridor, and peripheral road are particularly driving the residential market in the peripheral regions.
Hyderabad: The residential market of Hyderabad has witnessed steady growth on the back of solid fundamentals. The consistently performing commercial sector in Hyderabad had a positive impact on the residential real estate. But after a staggering ~50% return in the last five years, the city’s prices witnessed a momentary dip of 5.2% in Q2 2020 due to the ongoing pandemic. The state government’s quick corrective measure like dropping the plan to increase stamp duty and registration charges is likely to go well to support the falling demand. Even developers have introduced incentives such as no EMI until possession to attract home buyers. Government initiatives such as permits to construct a house through self-certification (built-up area <675 sqft), decision to spend Rs.50,000 crore in the next five years for the development of Hyderabad Urban Agglomeration Area, and positive policy for IT/ITeS sector would ensure the long term growth in the market.
Some initial green shoots have started to emerge in the real estate market and it is heartening to see that the cities of Bengaluru, Pune and Hyderabad are leading the turnaround. But we also need to factor in any potential construction delays which may further lead home buyers away from under-construction properties. Projects with ready-to-move status are likely to remain favourable among buyers and demand is expected to tilt towards the smaller configuration of 1 and 2 BHKs across cities. Our data shows that more than 80% of the searches pan India are now happening for ready-to-move-in properties as home buyers look for comfort around financial. Given the findings, developers will now have to be responsive in catering to the changing demands of India’s home buyers.
(By Sudhir Pai, CEO, Magicbricks)