The real estate sector in India is one of the fast-moving sectors of the economy – it is the second-highest employment generator in the country after agriculture. The sector is deeply interlinked to a huge number of allied industries. The sector is estimated to account for about 6-7% of the economy and is hoped to account for nearly 13% of GDP by 2025 if all reform measures announced are executed well. The sector has been one of the biggest wealth creators in recent years.
The entry of large corporates and consolidation have led to the expansion of the Indian property market with the value of real estate under construction jumping over two-fold to $ 243 billion in the last one decade, according to a report by FICCI and Anarock. The expansion of the property market was largely driven by the residential segment.
India’s real estate market has grown tremendously in the past decade. Robust occupier interest, the rise of organised real estate developers and the entry of institutional capital have acted as catalysts for growth. The year 2019 was a period of many highs and lows for the Indian real estate market. The ongoing NBFC crisis resulted in a liquidity squeeze and slow pace of recovery in sales. However, on the positive end, the successful launch of India’s first Real Estate Investment Trust (REIT) opened new avenues for investments while multiple positive government initiatives provided a much-needed relief to the sector.
The three major reforms – the introduction of the goods and services tax (GST), the launch of RERA (Real Estate [Regulation and Development] Act)and the grant of infrastructure status to affordable housing properties – have had a massive and positive impact on the industry. The government’s vision of ‘Housing for All by 2022’ and the grant of infrastructure status to compact, affordable residential homes saw an increase in the demand for low-cost homes.
After some initial disruptions in growth dynamics following the structural reforms, the enhanced liquidity in the banking system and the government initiatives, the restoration of buyer confidence was slowly improving the performance of the real estate sector before Covid-19 hit Indian shores.
The sector saw a huge slump in demand and was forced to postpone new launches following the lockdown. The rollout of the vaccine and resumption of normalcy has now given the sector hopes of revival. While the fallout of the pandemic cannot be written off, urbanisation has to continue and the real estate market will return with renewed steam in the near future. This return of sales in 2021 displays a surge in demand among the middle-income and upper-middle-income groups as they get ready to buy their dream homes in a year that has started off on a good note with the sector and overall economy looking up.
There will be changes in buyers’ preferences in terms of residential layouts after the pandemic – bigger floor space, higher safety, hygiene, and captive amenities may find their way to more home buyers.
A healthy lifestyle will be a key criterion for homebuyers in the post-Covid era. Resultantly, preferences will tilt towards larger homes in self-contained complexes with facilities like gym, green open spaces and access to daily necessities. Moreover, with work from home becoming a reality, product metrics are likely to change.
Remote working practices will increase the attractiveness of suburban markets. Suburban markets offer lower density environments and more spacious apartments at affordable rates. Since travel to the office may no longer be an everyday activity, the importance of connectivity to office hubs will no longer dictate home purchases. In terms of commercial real estate, satellite offices in non-conventional markets outside the central business district may be in more demand now. The wide adoption of WFH (work from home) across the IT sector may lead to a demand for commercial space - at least in the beginning.
Government initiatives
The `20 lakh crore economic package announced by the government had come as a relief to the sector. FM provided certain incentives to the construction and housing sector to reduce the stress it is currently under. The package extended all central agencies’ contracts by up to six months (without costs to the contractor), with the agencies asked to partially release bank guarantees to the extent contracts have been partially completed so as to ease cash flows for contractors.
The Atmanirbhar Bharat 3.0 package announced by Finance Minister Nirmala Sitharaman in November 2020 included income tax relief measures for real estate developers and homebuyers for primary purchase/sale of residential units of value (up to ` 2 crore ($ 271,450.60) from November 12, 2020 to June 30, 2021).
The government-backed `25,000-crore SWAMIH stress fund launched last year to complete around 4.5 lakh units has been operationalised and an investment of over `10,000 crore has already been made.
Atmanirbhar Bharat and the increase in FDI are indicative of a strong recovery of commercial real estate towards the second half of the year. The construction sector is the third-largest sector in terms of FDI inflow. FDI in the sector (including construction development and construction activities) stood at $ 42.97 billion between April 2000 and September 2020.
In its bid to help the real estate sector survive this unprecedented health crisis, the government announced various measures. These included invoking the 'Force Majeure' clause under the RERA to extend project completion deadlines by 6-9 months, the extension of interest subsidy for the middle-income group and relaxing tax rules to allow sales of homes valued up to `2 crore at a 20% discount to circle rate.
Admittedly, the future growth of the real estate sector as for many others would depend on how the economy performs in the coming months. The initiatives taken by the government and the RBI to halt the slowdown have started yielding results, with the contraction narrowing to 7.5% in the second quarter, i.e., July-September 2020. The comforting news at the moment is that economic growth, according to some experts, including the Delhi-based economic think tank National Council for Applied Economic Research (NCAER), is likely to turn positive in the next two quarters.
NCAER expects growth to be 0.1% in the October-December quarter and 2% in the January-March quarter. The prospects of positive economic growth in Q3 and Q4 of this fiscal year augur well for the real estate sector. FM in her budget speech had looked highly optimistic about India’s turnaround. Later, RBI too had seconded her predication. And now the IMF, in its latest World Economic Outlook update released last January, has predicted India’s GDP to grow by even higher - at 11.5% in 2021.
Mumbai saw a paradigm shift
While 2020 will be remembered for the coronavirus and the subsequent lockdowns, India’s real estate sector, especially that of the Mumbai Metropolitan Region (MMR), will remember it for the economic turnaround and demand revival.
After the announcement of the nationwide lockdown, it was extensively predicted that this will be the year of real estate’s greatest fall. The outcome was quite the opposite with November 2020 recording the highest number of residential registrations in almost a decade in Maharashtra. Among other reasons, this spurt was caused by the state government’s decision to reduce the stamp duty.
In 2021, the momentum of historic sales could slow a bit but will remain strong to narrate a positive story. Unlike the past year, the real estate sector is now picking up with home buyers willing to make the move. With most workers displaced during the lockdown now back, construction activity has resumed and work is moving at a faster pace to fulfil commitments.
In Mumbai, there are a lot of properties which were unsold but ready to move in - with no GST to be paid because occupation certificates were already issued. This has also helped home buyers look at real estate proactively and as an investment.
The demand for residential property has in fact also been guided by the concept of work from home — as families are now looking out for an upgrade as individual space becomes a crucial factor.
Real estate scenario in H1 2020
As predicted by most of the property dealers, the lockdown had a devastating impact on the real estate sector. Sales of both residential houses and commercial properties nose-dived. Sales of residential properties decreased by 49% in H1 2020 compared to H2 2019 as every city underwent contraction. The contraction was in the range of 46% to 51% across the top seven cities of India. Sales in Q2 2020 accounted only for 22% of H1 2020, which primarily led to an overall decline in half-yearly sales. Q2 2020 units sales were 72% lower than the previous quarter and nearly 81% down from Q2 2019.
Understandably, in H1 2020 new launch supply declined by 56% compared to H2 2019. The nationwide lockdown imposed from the last week of March severely impacted the real estate sector - resulting in muted launches.
The third quarter of 2020 was the most impacted quarter with launches being the lowest since 2013. During this quarter, new launch supply declined by 97% over Q1 2020 and 98% over the same period last year. The share of affordable housing in H1 2020 new launches was around 36% of the total supply. This decreased from 41% in H2 2019. In absolute terms, the half-yearly decline in this segment was around 61%. No new supply was added in the affordable segment in Q2 2020.
New launch supply trend
(residential market - no of units)
City
H12020
H12019
NCR
6190
21600
MMR
10490
49890
Bengaluru
9190
20080
Pune
8540
28220
Hyderabad
3380
9000
Chennai
3680
7060
Kolkata
1140
3640
Source: Anarock - Pan India H1 2020
What is significant, however, is that despite the prevailing unprecedented crisis created by the Covid-19 pandemic, 57,940 units were sold, and sales continued to exceed launches in H1 2020. Unsold inventory registered a marginal decline of 2% in H1 2020 compared to H2 2019. Sales continued to exceed new launches, resulting in unsold inventory reduction.
Unsold stocks
(residential market - no of units)
City
H12020
H12019
NCR
171020
181930
MMR
209550
224010
Bengaluru
60390
64680
Pune
91910
92790
Hyderabad
24250
25130
Chennai
33020
31470
Kolkata
42920
45560
Source: Anarock - Pan India H1 2020
Anarock Property Consultant’s year-on-year data indicates that the top seven cities saw total home sales of 1.38 lakh units in 2020 against about 2.61 lakh units in 2019 – down by 47%. In addition, the new residential housing supply in 2020 declined by 46% compared to the previous year - from about 2.37 lakh units in 2019 to about 1.28 lakh units last year. Mumbai and Pune witnessed the maximum activity in the residential housing sector.
Sales trend
(residential market - no of units)
City
H12020
H12019
NCR
10250
26380
MMR
17530
45370
Bengaluru
11620
28740
Pune
9360
22830
Hyderabad
3340
9830
Chennai
2670
6420
Kolkata
3170
7550
Source: Anarock - Pan India H1 2020
While residential real estate bottomed out in 2020 against the previous peak of 2014, the fourth quarter witnessed strong signs of revival. The top seven cities saw robust sales of approximately 50,900 units in the fourth quarter of last year accounting for about 86% of the sales in the corresponding period of the previous year.
Fourth sales jump
According to Anarock’s survey, the festive quarter (October-December) stood out among all four quarters in 2020 witnessing maximum sales due to multiple offers and discounts given by the developers, low interest rates and limited-period stamp duty reduction in some states.
Emboldened by the rising sales in the fourth quarter, developers brought forward new supply into the market leading to a 2% year-on-year increase in new supply in Q4 against the same quarter a year ago. The new supply was largely dominated by strong brand developers meeting the requirements of the new time.
The strong growth in the fourth quarter seems to have left behind the agony of the sector only months ago when sales and new launches touched rock-bottom following the lockdown. Maybe, the fourth quarter’s good performance would now set the stage for revival of residential housing activity in 2021.
In fact, a recent JLL report has appeared very optimistic and has claimed that while there is still a long way to go, the worst is behind for the residential sector. It says the challenges faced by residential real estate in 2020 have, in fact, become the catalyst in providing stimuli to the industry for sustained growth. With people spending an inordinate amount of time at home, the lockdown re-established the importance of owning a house. At the same time, the central bank is leading the way to recovery by holding policy rates at historically low levels to initiate a cycle of consumption-led growth.
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