Is the recovery in real estate in India sustainable? – The Financial Express

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Though the Indian real estate market is reeling under the COVID-19 impact, it can be a very positive time for home buyers.

Even though the pandemic drastically impacted the sector in 2020, better days are expected in  H2 of 2021.

With the Coronavirus pandemic impacting all sectors of the economy, the troubles have compounded for India’s realty sector, which has been dealing with a ‘challenging scenario’ since the economic and policy reforms were introduced. The slowdown since February-end is apparent and while site visits are almost non-existent, the decision-making process is hugely delayed.

The demand slowdown in the residential segment has already curtailed housing sales, project launches and price growth in India’s residential realty sector, which has been reeling under the pressure caused by mega regulatory changes, such as the Real Estate Regulatory Authority (RERA), the Goods and Services Tax (GST), demonetization and the benami property law. The impact of Coronavirus on the Indian real estate sector was stifling to the point that it brought property transactions to a near-halt last year when the nation went into a complete lockdown between March and June 2020. Since then, the market has taken several strides towards recovery, and just when it seemed the revival was not far, the country was struck by another wave of the virus, this time, far more fatal.

However, with an aggressive vaccination drive across India, the real estate sector has started showing signs of a sustainable recovery. With several cities like Mumbai, Pune and Delhi NCR undergoing partial lockdowns and masses struggling for healthcare, the realty sector has seen another blow. Buyers have retracted once again from conducting site visits, thus slowing down property transactions. Industry experts are of the opinion that the recovery will be highly dependent on the way India deals with the second wave of Coronavirus.

Though the Indian real estate market is reeling under the COVID-19 impact, market experts say that it can be a very positive time for home buyers as they are at an unprecedented advantage to negotiate good deals on ready-to-move-in options. Homebuyers are also likely to benefit from all-time-low interest rates of 7.15 to 7.8 per cent on home loans. The pandemic has also made buyers realize the value of homeownership, thus, giving a sold sentiment boost to residential real estate. COVID-19 lockdown has accelerated technology-led home buying in India, making it possible to inspect properties online as well as negotiate and finalize deals. Virtual site visits are also becoming a reality and a large chunk of the property selection and purchase process can now be done digitally.

While the adverse effects of the pandemic are already being felt across the world, varying opinions are emerging on COVID-19’s impact on the real estate sector, a health emergency that force-launched the biggest ever work-from-home experiment globally, putting a question mark on the relevance of workspaces in a post-Coronavirus world. The second wave of Coronavirus has imbued uncertainty in the sector, resulting in a temporary pause, but the developers are now better prepared and well-versed with the know-how of a pandemic. The Indian real estate sector is now a buyers’ market and the ongoing inoculation program is boosting the confidence of homebuyers. It is most likely that the sector will resume its growth from the third quarter of FY 2021. There will be a steady flow of investments that will ensure growth opportunities with higher returns. The halt will be short-term and confidence in the market will return as soon as the Covid curve gets slowed.

Amid the RBI continuing to keep the repo rate unchanged at 4%, homebuyers can currently get home loans for as low as 6.65% annual interest. This is in contrast with the average home loan interest rate of 8% seen in January 2020. Price growth in the housing segment has also been under pressure in the past year, due to the impact on demand.

Price Expectations in the next 12 months

In Mumbai, 58% of the city respondents expected the price of their current residence to increase by 1% – 9% in the next 12 months. In the H1 Mumbai Metropolitan Region, the share of sales in the relatively expensive segments (pricing above INR 5 million) grew from 46% in H1 2020 to 56% in H1 2021 while that in the relatively affordable segments (pricing below INR 5 million) came down from 54% to 44% in the same period. In H1 Delhi, the price for residential real estate during the first half of 2021 largely remained at par with the H1 2020 levels.  The lower expected margins have kept developers away from offering outright discounts, although, they have been offering flexibility in payment of booking amounts and deferred payment options since the COVID-19 outbreak.

Relocation or moving to a new home

In Mumbai, 10% of the respondents from Mumbai reported having relocated their residence since the start of the pandemic. 35% of the respondents of Mumbai are inclined to consider relocating to another city in the next 12 months. In the Mumbai Metropolitan Region, a large percentage of homebuyers in the luxury segments had purchased their homes during the 2% stamp duty window which had closed on 31st December 2020. As a result, in H1 2021, within the >INR 5 million segments, the segment priced between INR 5-10 mn saw its share grow from 24% in H1 2020 to 39% in H1 2021. In Delhi, the share remained steady at 34% of overall sales volume in NCR.  Noida, on the other hand, saw its share reduce from 18% of the total sales volume in H1 2020 to 15% in H1 2021. However, in terms of volume, Noida noted a healthy YoY increase in home sales.

Reasons to influence future purchase decisions

In Mumbai, Upgrading family residence (21%) followed by business/employment reason (16% of the respondents), and an increase in the family size (15% of the respondents) are the key reasons. In Mumbai Metropolitan Region, the income streams of homebuyers in the mid to high-income segment were relatively less impacted by the pandemic and they also had a greater cushion of savings compared to the homebuyers in the affordable segments which could lead to the purchase of new houses in the future. In Delhi, sales of homes costing over INR 1 crore saw the maximum volume of sales during H1 2021. The high-end segment benefited the most during this period, recording 39% of overall absorption in home sales, compared to 28% in H1 2020 and so this could lead to future home purchases.

Preferred location features to influence future purchase decisions

In Mumbai, 95% of the respondents reported accessibility to good healthcare as the primary feature to influence the purchase decision. Less polluted areas (89%), Proximity to workplace (81%) and Good views (81%) were the other important features. In Delhi, the recent announcement to fast track the completion of the Dwarka Expressway by August 2022 should help in attracting buyers to the affordable and mid-segment products along this belt.

Future Expectations

Even though the pandemic drastically impacted the sector in 2020, better days are expected in  H2 of 2021. Amid growing importance of homeownership among buyers and investors, the demand for residential real estate would be high in the coming year. In these extraordinary times, stakeholders across sectors have an opportunity to structurally re-imagine their strategies, to ensure sustained recovery. Doing so would require shifting from traditional approaches and embracing new, transformational methods — which would be accelerated by widespread tech adoption, sustained policy impetus and accelerated investor interest in Mumbai, Mumbai Metropolitan Region and Delhi.

(By Rajani Sinha, Chief Economist & National Director – Research at Knight Frank)mail logo

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