How has the residential real estate perform in the past two quarters?
The main theme of 2020 has been about being accommodative, collaborative and understanding, not just in real estate but across sectors and industries. Despite the unusual pressures on the housing market, residential real estate is on a high this festive season. At the industry level, ANAROCK data reveals that the top 7 cities altogether saw housing sales of nearly 42,250 units in the last two quarters (April-Sept period). Further, the ongoing festive quarter (Oct-Dec period) is also seeing robust housing sales across the top cities. This is largely due to multiple offers and discounts being doled out by developers all across and limited-period stamp duty cuts in states such as Maharashtra. These discounts and offers collectively give buyers overall financial benefit between 5-15% of the property cost depending on project, amenities, etc. Additionally, lower home loan interest rates are also attracting buyers. Latest data trends also signal positive trends. ANAROCK Property Consultants sold 1,805 homes across top 9 Indian cities (NCR, MMR, Chennai, Kolkata, Bangalore, Pune, Hyderabad, Ahmedabad and Lucknow) and Dubai in the months of September and October this year. Last year, the firm sold 1,016 units in the corresponding period.
How will be demand offtake in the remaining quarter of the current financial year?
This pent-up demand to own homes has been further accelerated by pandemic-like exigencies coupled with the ongoing favourable period amidst these schemes and offers. What we are seeing right now is organic demand driven by the desire to own homes. If and when the various discounts and offers are rolled back, demand remains even though sales velocity may decrease. If there was no demand, these deal sweeteners wouldn’t have been effective. Also, developers will obviously continue to fuel demand with offers and schemes even beyond the festive season in 2021. Likewise, home loan interest rates will not harden anytime soon as it is quite clear that increasing interest rates would impact overall demand at a time when the government is keen to boost consumption. Therefore, we expect housing demand to continue going forward as home ownership has gained top priority for even the new-age millennials who previously shied away from it.
Is there a shift in buyer’s preference in terms of flat formats from 2bhk-1bhk to mid-size and affordable housing?
Post Covid-19, the new work-from-home realities and online education is somewhat altering buyer preferences. Many of these prospective buyers are preferring larger spaces in the peripheries over small-size homes in city centres because the current situation demands so. It is not as if the overall budget of a buyer has increased post-Covid-19 period, but they are now fine to live outside city limits and buy well within their budget or even less. For instance in Bengaluru, in the last few months, enquiries for larger homes have increased up to 40% with property seekers predominantly scouting for 3BHKs (avg. 1,800 sq. ft. built-up area) as against the previously-preferred 2 BHKs. The current buyers are largely working couples with children and pursuing the WFH and e-learning options. Most of these buyers will settle for peripheral locations to secure bigger homes and a better lifestyle at more affordable prices. Likewise in MMR, some buyers are seen to be upgrading from 1 BHK to 2 BHKs.
Post lockdown what is the role technology is playing in marketing and construction of residential real estate?
Most broking firms are relying heavily on technology world over to continue doing their business during the present pandemic. They are seen to be transitioning anything that requires physical communication to virtual interaction. These include e-brochures for housing projects, virtual tours, videos or walkthroughs, video conference calls, setting up online payment structures and banking platforms. Thus, the world of real estate marketing is changing. The internet had already changed the game for realtors everywhere, with consumers being able to see new property from the comfort of their own homes. However, crisis such as Covid-19 calls for further improvisation and usage. For instance, remote-controlled drones are another technology gaining importance among the real estate brokers in countries like US. These had already begun to be used in the pre-Covid-19 era but are now more significant than ever.
Shrinking economy, insufficient funding, unsold inventory, the challenges are many. Is the industry headed for consolidation?
Undoubtedly, the current scenario has put severe financial strain on many developers, and many will cease to exist. It is estimated that over the next three years at least 80% of the current developer strength will be eliminated. And, going forward, the financially strong and organized developers will occupy at least 75-80% of Indian real estate market share. Survival of the fittest and financially strongest will thus be the new norm in Indian real estate. Thus, this consolidation phase is likely to continue amidst the current COVID-19 and as we emerge from this pandemic, many weak players may cease to exist.
Work-from-home is here to stay, at least 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?
More than anything, consumer preferences have altered post the pandemic in order to accommodate new market realities. New trends are seen to be emerging. Among many changes, with work-from-home a viable option today, many future homebuyers are looking to shift to the peripheral areas for bigger homes and a better lifestyle – at more affordable prices. Thus, the previous ‘gold standard’ of Indian housing – the walk-to-work / short drive to work, by definition only in and around central corporate workplace hubs – may thus shed much of its popularity for several prospective homebuyers. More than ever, Indian real estate is bracing itself for a very new post-Covid-19 world. One significant trend may be reverse migration spurring housing demand in Tier 2 & 3 cities. Currently, the top 7 cities account for almost 70% of India's residential market, with the remaining 30% accounted for in Tier 2 & 3 cities. This ratio may well change in times to come.
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?
The economy of a country has both direct and indirect correlation with real estate and its health often impacts the value of real estate and the overall sentiments. It is measured by economic indicators like GDP, employment data, manufacturing activity, etc. Broadly speaking, if the economy is sluggish then so is the real estate. More than anything, contraction in GDP – as presently – does lead to lower all round sentiments amidst fear of job losses, etc. Inevitably, homebuyers get very cautious and prefer to hold on to their buying decisions rather than taking the plunge. Despite government and RBI’s concerted efforts to offer incentives and benefits to the real estate sector post Covid-19, there is much more to be expected. Easy access to capital is surely one of the biggest worry for Indian real estate. Project delays – the biggest fallout of the cash crunch – has dampened buyer sentiments. Ensuring increase in capital flow for developers will keep supply – most importantly of high demand ready-to-move-in homes – healthy. Increased supply also keeps prices in check. Moreover, reforms pertaining to land have been long overdue in India – ranging from regulation in ownership to operation to sale to leasing and inheritance. As a probable solution, implementation of a unique identity number or UID will help streamline and organize India’s outdated land record system. It will thus bring in greater transparency in the system. Besides this, it will also help attract more foreign investors for whom lack of proper land titles is a major deterrent for investing in India.
What are the challenges and emerging trends in residential real estate?
New trends seen to be emerging in residential real estate are with work-from-home a viable option today, many future homebuyers may shift to the peripheral areas for bigger homes and a better lifestyle – at more affordable prices. Thus, the previous ‘gold standard’ of Indian housing – the walk-to-work / short drive to work, by definition only in and around central corporate workplace hubs – may thus shed much of its popularity for several prospective homebuyers. Further, many prospective homebuyers are preferring to now shift to self-sustained gated communities where their entire family’s needs are sufficiently met. Mostly, these self-sustainable housing societies offer companionship, safe and secure environment, while providing amenities that reduce the need to venture out. Notably, top cities like Bengaluru, Hyderabad, Chennai, Pune and Gurugram are seeing high demand for plots in the wake of the new realities presented by Covid-19. Many are now looking to buy land as a long-term investment. Alternately, few are even mulling to buy plots in gated societies and build and live in them. Such self-owned homes provide better social distancing in comparison to apartments as well as give the option of living in greener and open spaces.
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?
To exhort developers to cut property prices in order to push sales is an incomplete narrative. In fact, to overcome issues like inventory pile-up and cost overruns, many developers have already topped off major discounts with additional offers like refundable booking amounts, waived statutory fees, cashback schemes, easy payment structuring and assorted freebies. However, despite coupling these with Government measures and bank incentives, it has not sufficed to bring about a significant revival in sales. Various government and RBI measures in last few months were geared towards tackling supply concerns. What the sector needs is measures that will bolster demand. Some immediate measures that will boost demand include allow selective subvention schemes for developers with good track record; waiver of GST on homes for certain period may attract buyers as it will reduce overall property cost by at least 5% for premium homes priced above INR 45 lakh; reduction in ready reckoner rates & stamp duty cuts (like Maharashtra) may further attract prospective buyers. Limited-period stamp duty cut in Maharashtra has helped boost sales. It also helped the state government to increase its revenue with rise in property registrations. With RBI slashing repo rates earlier, it is imperative that banks further slash home loan rates as it may help alter the demand dynamics among the low and middle income groups. Increase tax benefits to homebuyers and also extend income limit under PMAY to boost demand.
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