Realty Review 2020 : Resilient Realty on Path to Recovery
The fledgling real estate that was dealt a crippling blow by Corona pandemic, showed resilience to put itself on the path to recovery.
The magnitude of the massive hit that real estate got due to unsupporting economy following Corona induced lockdowns was evident from the depressing data in H2, 2020, especially of June quarter. According to Anarock Property Consultants, the resident segment saw sales declining by 49 percent in H1 20, in comparison to h1, 19. It was 37 percent lower than previous trough of H2, 2016. There was half yearly decline of 56% in new launches.
Talking of commercial real estate, office realty supply was expected to go up this year. However, due to pandemic disruption, it was severely hit. As per Knight Frank India, office realty witnessed a decline of 27% you to 17.3 msf in Hi20. the NCR and Pune markets respectively saw sharpest fall of 86% and 87%.The office leasing dropped by 37% yoy to 17.2 msf , lowest in a decade.Transaction activity fell 79% yoy during Q2 period.
Retail real estate was the severest hit segment due to closure of shopping malls for several months. Multiplexes, the major revenue driver, were shut for even longer period, badly hitting mall revenues. The mall space supply was also badly hit.
But with pick up in economic activity from post June quarter, depressed real estate started looking up. Consequently, office market saw improvement over Q2.According to JLL India, office market witnessed net absorption of 5.4 msf in quarter ending September, registering an increase of 64% over June quarter. Bangalore and Hyderabad led this growth. Prestige Estates which leased 17 msf to Accenture, OLA Technologies and an electronic giant is upbeat about more demand for office spaces in coming months.
Housing, the major segment of real estate, also saw significant rise in demand, especially September onwards, with the onset of festive season. Cash- starved builders resorted to aggressive marketing to push sales to cut down high unsold inventory , in order to improve their cash flows. Developers came up with attractive payment plans, subvention schemes, deferred payment and EMI holiday offers Some offered to pay interest on home loan till possession.There were attractive deals and discount offers to lure prospective home buyers. NCR builders resorted to property swap scheme, offering home buyers of stalled projects, choice to own a new property. Lowest interest rates and stamp duty cut by Maharashtra and Karnataka further helped fuel sales. Residential sales in Mumbai increased 36% yoy in October, surpassing pre-covid levels. The month saw the 4th highest monthly sales in terms of volume and value.
To beat Corona disruption, developers successfully took to digital marketing. This paid rich dividends. Prestige Group reportedresidential sales of Rs 1123 crore of 1.77 msf of built up area, doing exceedingly well in October-November as well. Sobha Group, according to its Vice Chairman and MD, J C sharma, the H2 FY 21 will be better than H2 FY 20 performance when the company did roughly 1.9 msf of new space in volume terms. In value terms, the group is ahead of what it achieved last year- in i H1 FY 21, it did about 1.54 msf. According to leading Institutional Channel Partner 360 Realtors , there’s a steep jump in home sales on a monthly basis in most major markets like NCR, Pune, MMR, Bangalore, Kolkata, Lucknow etc. NCR based marketing company Square Yardssuccessfully clocked Rs 225 crore of sales during Diwali. Property Consultancy Anarock marketed residential properties worth Rs 102 crore during Diwali, surpassing last year’s sales during this period.
Ankit Kansal, MD 360 Realtors, attributed the spurt in residential sales to improved affordability. Added Pradeep aggarwal, Founder & chairman, Signature Global and Chairman, Assocham National Council on Real Estate, Housing & urban development, ” Affordable housing contributed significantly to the pick up in residential sales. Home purchase affordability rose this year with home loan rates dropping below 7%, more than offsetting the adverse impact of low incomes due to Corona onslaught. To be in safe environs of our own home during corona times also helped boost home sales. The growing concept of Work from Home (WFH) generated demand for little bigger homes. Buyers would not mind going to suburbs of big cities or even moving to tier 2- 3 cities to maintain home affordablity. Also because of social distancing norms, demand for plotted developments went up.
Even the pick up in the sale of luxury housing that was massively hit, came as a pleasant surprise. “Demand for super luxury (Rs 15-20 crore) homes gained traction. This could be attributed to the reason that the inventory in this segment in the market is mostly ready-to-move which buyers of super luxury homes prefer”, says Anuj Puri, Chairman Anarock.
Despite these positive developments, the moot question is whether real estate recovery will be sustainable in the months ahead. Several challenges remain on realty horizon. The unsold home inventory has increase due to pndemic. According to Liases Foras at the end of FY 20, it took 15 quarters to clear inventory which increased to 19 quarters by H1 FY 21. Financally weak and small developers faced difficulty in raising capital at reasonable rates. despite debt restructuring announced by RBI, many find themselves unable to avail it due to involving conditions. developers saddled with huge debt were burdened with debt servicing. On top of that marginal increase in unsold stock did not help in improving cash flows. Further, there is still uncertainty about controlling Corona and the associated risks to economy.
However, what is reassuring is that promises outweigh pitfalls, raising hopes of real estate recovery to sustain in 2021. Ankit Kansal is positive that rise in home sales should continue beyond year end, neutralising the demand slump triggered by Covid. There could even be significant rise in new launches. This is clearly evident from Godrej Properties have a pipeline of 22 projects till March 2021. Developers are confident that Finance Ministry’s decision not to impose additional tax liability on buyers and sellers for transactions with price difference of up to 205 in circle rates and market rates, will help keep the sales momentum going. The stamp duty cut by Maharashtra till March 2021 will be another propeller.
Further, positive sentiment of stable /declining property prices, all-time low interest rates and zero GST on ready-to-move homes and just 1% on affordable homes, will continue to boost sales. Keki Mistry, VC & CEO, HDFC says that lower interest rates regime will continue for another 2-4 quarters, providing best home buying opportunity. Ridham Desai, MD, Morgan Stanley India opines that realty and infrastructure will do well with government push as the stimulus finds its way into real economy and that appears to be playing out. Ramesh Nair, CEO & MD, JLL India paints positive prospects of real estate, ” Growth prospects in 2021 look brighter. Residential sales in affordable and mid-segment is expected to show the fastest turnaround. Office real estate should also be leading real estate recovery along with promising alternate asset class of warehousing”(NBMCW)
The writer is Editor, PropTOQ real estate magazine