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The residential 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?While Q1 was a washout, there has been some buoyancy over the last 3 months beginning September. On the face of it, the sales in this period has been better than in the same period last year. However, dissecting the demand will show that the buoyancy is driven by short-term factors like reduction in stamp duty to 2% in some markets till December, pent-up demand from Q1, delayed registrations of homes booked pre-lockdown and myriad offers from developers to show bookings not all of which will get converted to final sales.
How will be the demand offtake in the remaining quarter of the current financial year?
With most of the short-term benefits like lower stamp duty, offers from developers and a favorable interest rate scenario expected to continue for the rest of the financial year, the bookings should sustain albeit at a lower pace as compared to the last 3 months. Overall FY21 is expected to be weaker than FY20 by 30-40%.
What is your assessment for the next financial year 2021-22 for the residential real estate sector?
Impact of the pandemic on spending ability of buyers is expected to continue in FY22. Further, commercial real estate showing signs of stress with property rates correcting significantly in major markets. Over the last few years, a buoyant commercial real estate had provided developers with the holding power in the weak residential real estate segment, which may come under question in FY22. Hence, the ability of developers to support residential real estate will be lower, thereby negatively impacting the residential real estate segment.
Is there a shift in buyer’s preference in terms of flat formats from 2bhk-1bhk to mid size and affordable housing?
In the short-term this is visible given the uncertainty of jobs and salary raises over the next couple of years but this may reverse quickly if the consumer confidence returns with some talk already of a V-shaped or a hockey stick shaped recovery expectation.
Shrinking economy, insufficient funding, unsold inventory, the challenges are many. Is the industry headed for consolidation?
Consolidation is inevitable as is evident from some of the recent deals. Large developers will look to diversify their segment of operations with the easiest route being takeovers. Developers operating in the luxury segment will look to move into the affordable housing segment, developers will also diversify across cities and also across residential and commercial real estate.
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?
There will be some permanent movement from large cities to Tier II and Tier III cities especially given the better IT and travel infrastructure available in some of these cities. However, this will be limited to some sectors like IT and not as widespread as earlier expected with the work-from-home fatigue already beginning to show in most employees.
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?
Providing an incentive to buy is the best to alleviate the stress in the residential real estate sector. As has been seen in the markets that have offered cuts in stamp duties, sales can be pushed through providing right incentives to buy. The biggest reason for stress in most large markets is the build-up of inventory over the last many years, leading to high leverage and low liquidity with developers. Providing further incentives including an interest subvention for sales in the ready-to-occupy segment for the rest of the financial year can provide a significant boost to the sector.
What are the challenges and emerging trends in residential real estate?
Given the weak profile of developers, it is not easy to elicit buyer interest in under construction properties, thereby making it difficult for developers to fund the construction of properties. This will lead to further consolidation with a few large developers cornering the market providing them with more pricing power going forward.
