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The sector has started witnessing greenshoots, says Divyesh Shah, Associate Director and Sector Specialist, CARE Ratings

The sector has started witnessing greenshoots, says Divyesh Shah, Associate Director and Sector Specialist, CARE Ratings

The real estate has battered almost all the industries, residential real estate being one of them. How did the residential real estate perform in the past two quarters?
The real estate segment is an important indicator of macro economy and was already witnessing slowdown before the pandemic struck; the emergence of contagion had further accentuated the pain owing to weak consumer sentiments, halted construction, labor issues, deferment of buying decisions, administrative bottlenecks and curtailed funding avenues. All of these scripted a much darker story in Q1FY21 (Refer period 01 April to June 30) with sales plummeting to lowest levels, new launches getting postponed, overall demand and supply coming to standstill. However, in Q2FY21, while the economic activities showed signs of improvement, the sector too has witnessed steady sales traction especially for mid-end and affordable dwellings priced under INR 5 mn. Further, with ongoing festive season, Q3FY21 so far has witnessed clear rebound in demand and RBI revising its full year projection of GDP contraction to -7.50% from earlier forecast of - 9.50% corroborates the same. With evident signs of recovery, large developers are now eyeing onto launching their deferred projects which would eventually push the new launches and sales on a growing trajectory.

What is your assessment for the next financial year 2021-22 for the residential real estate sector?
Owing to persisting weak sentiment of buyers and second wave hitting the tier-I cities, the near term outlook for residential space seems negative as yet and remains monitorable as to how the crisis unfolds hereon with process of vaccination to be initiated soon. However, on a positive note, the sector has started witnessing greenshoots of recovery with ongoing festive season and it would not take long to recover. Accordingly, second half of next financial year is certainly expected to witness a positive turnaround and large developers coming up with new launches will provide an impetus to overall growth trajectory. Given the current market conditions, affordable housing and mid-priced housing are the sweet spot for the developers. Hence, next financial year will witness relatively larger supply in such segments.

How will be demand offtake in the remaining quarter of the current financial year?
There has been a noticeable rise in demand in most of the tier-I cities in Q3FY21 so far owing to the festive season and the Government coming out with various measures to boost the overall demand. Various offerings such as, Maharashtra Government coming out with reduction in stamp duty, home loan interest rates at all-time low, increasing focus of banks to retail lending, festive discounts from developers has collectively changed the trajectory for the sector from Q3FY21. While the sector has witnessed steeper recovery than envisaged in the said quarter, the persistence of such foothold in the fourth quarter remains monitorable with second wave of the pandemic sweeping in globally as well as in the key cities of India.

Is there a shift in buyer’s preference in terms of flat formats from 2bhk-1bhk to mid size and affordable housing?
There has been a visible trend that affordable and mid-end housing has been leading the sales traction for the segment over the past few years. The outbreak of pandemic has further accentuated buyers preference towards affordable and mid end housing. Whereas the emergence of nuclear families, low income levels and cap on carpet area for availing credit linked subsidy scheme has shifted the focus of buyers to right priced and mid-sized dwelling. Resultantly, housing units under INR 5 million can be seen as the biggest contributor in overall residential sales in the first half of this pandemic driven financial year. This has led the developers to realign their strategies and focus more on right-sizing and right-pricing to attract more price conscious buyers.

Post lockdown what is the role technology is playing in marketing and construction of residential real estate?
The eruption of pandemic has made developers technologically integrating the processes like usage of drones for monitoring the construction, virtual tour of homes, deployment of applications providing end to end services from purchasing units to after sales service and use of block chain technologies for various payment activities.

Shrinking economy, insufficient funding, unsold inventory, the challenges are many. Is the industry headed for consolidation?
Post demonetization and implementation of RERA, many developers found it difficult to cope up with regulatory reforms. With this backdrop of growing regulations, transparency and repeated disruptions to business activity, many unorganized players in the segment faced cash flow issues and shrinking funding avenues. Whereas on demand side, the buyers confidence has dampened with mounting stalled projects which has taken an additional toll on cash flows of such developers. Resultantly, the industry has witnessed significant consolidation in the past few years and the pandemic has paved way for further consolidation.

Work-from-home is here to stay, atleast for a year or two. How will it impact the residential real estate market? Will there be more demand from Tier II and Tier III cities?
The market dynamics are changing now and clearly Tier II/III cities have been witnessing a noticeable sales momentum and high quantum of enquiries due to professionals migrating back to hometowns in the wake of ‘Work from Home’ concept. However, with the backdrop of crucial advancement in vaccine development, the contagion spread is likely to wane sooner or later and post departure of pandemic, whether ‘work from home’ will continue to supersede ‘walk to work’ and its implication on demand in Tier II/III cities remains to be seen.

Real estate contributes substantially to the GDP; plus growth of real estate has a cascading effect on ancillary industries such as cement, steel, timber, brick, building materials. What further policy initiatives are needed to propel the residential real estate sector?
Given the current market scenario with overall economy undergoing slowdown, the Government has backed the sector a lot with several initiatives like ‘Housing for all by 2022’, push to develop smart cities, introducing tax benefits and liquidity push for NBFCs. Creation of Alternative Investment fund has been the latest addition to the list which is likely to help in completion of stalled projects and in turn boost the demand with affordable nature of such units. All of these factors are likely to create positive impact on residential real estate as well as ancillary industries.

What are the challenges and emerging trends in residential real estate?
Lack of liquidity and introduction of new compliances and regulatory reforms have been the major challenges for the industry over the past few years. Shift in preference to ‘ready to move in’ properties has resulted in halted funding from customers and resultantly developers have to resort more on external funding which has largely remained dry for the sector with lenders turning averse. Besides, weak liquidity, the pandemic has brought in altogether a new set of concerns of pessimistic consumer sentiments, weakening financial profile of consumers, disrupted supply chain, etc, however same seems to be recovering gradually.
Growing sales trend on the back of work near home, child centric projects to cater to nuclear families, accelerated consolidation, shift in focus from launching to completing the existing projects and technological innovation to differentiate the offerings are the emerging trends to make a difference.

It seems whatever the sops initiated by the government and the private players are insufficient to elicit buyers’ interest. How can the potential fence sitters be converted to buyers?
Driven by various financial stimulus by the Government and RBI, the sector has been able to maintain the momentum. Developers are also offering discounts and various other schemes to improve demand, thereby liquidity for themselves. With improvement in macro economy, new jobs, and hope of vaccine, things may return to Pre-Covid level soon on consistent basis.

 

 




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