A look back of the year reveals what’s in and what’s out in the real estate space
In 2020 and 2021, the property market has seen two long years where home was often prefixed by ‘work from’ or ‘stay at’. Thiscomes on the heels ofratherfar-reachingregulatory changes in the preceding years. These events,which have been deep and prolonged,havetogethershaken the foundation of the property market, leading to a few trends – some intuitive and others that are a bit counter-intuitive – which became more evident in the year gone by.
One rather intriguing trend was how the prices behaved.The marketcertainlyhadanoversupply of properties andwitnessedslowing demand– creatinghuge unsold inventory.Data from real estate consulting firm JLL showed that inventory was at 4.62 lakh units starting 2021 and estimated 4.2 years to sell (based on demand).Many developers were in distress as they could not find funds to finish projects. All these led to many experts predicting a drastic price crash. In 2021, unsold inventory has increased to 4.77 lakh units and with slowing demand, the estimated years to sell has shot to 5.3 years as of Q3 2021, as per JLL.
However, the price reduction onlyplayed out in a few micro marketswhere developers offered discounts, whilethe overall property prices only saw moderate correction. In fact,datafor Q3 2021 fromproperty consultant ANAROCKshowedthat prices increased3 percentin 2021on average in the top 7 property markets. One reason for price stability was the ability of developers to hold inventory. Also,raw material cost increased and the developers had no choice but to pass it on. One more reason that may have helped is the low interest rate in the economy which spurred some demand even at original prices
Good end-user demand
Price appreciation for property assets has remained tepid for nearly a decade. This has over the years kept speculators and investors away.Sales growth in 2021 is mainly said to have been driven bydemand from end users who purchasedthe home for their immediate use.One driver for the interest is the fact that homes have become more affordable over the decade, thanks tolittle or no price appreciationon one handand increasing incomeon the other.
Data fromJLL’s Home Price Affordability Index for top 7 citiesshowedthatin 2013 only one city (Hyderabad) was considered affordable. In 2021, all the cities are above the affordable threshold. Thelow interest rate forhousing loanshasalso helped, as the EMIs are more manageable. Demand remained robust in traditionally end user markets such as Chennai andBengaluruversus others such as Delhi-NCR.
Even as job stability was not strong some sectors such as IT saw robust hiring and uptick insalary. This further aided a demandand price growth in markets such as Hyderabad and Pune.
Preference for completed homes
Given the huge inventory of completed homes buyers clearly opted for those over those that were under construction. Also,investors typically prefer under development property which may offer higher returns but come with higher risk. Therisks are perceived to be high, as the track record of on-time project delivery for many developers has been abysmally poor.
In fact, data from various RERA cases show that projects to be delivered as far back as 2017 remain uncompleted. This has naturally eroded buyer interest in booking early and waiting. For those who plan to move into the house it is less risky (due to not paying EMIs and rent plus GST on under-construction home )and often financially better to opt for a completed home.
Small developers shine
With the introduction of RERA and other regulatory measures it was believed that brand name developers will garner a larger share of the market. It was expected that the housing developer market will see consolidation with many small developers leaving the fray due to their inability to meet the new market demands.
However, data from property research firm Liases Foras shows that from 6,384 in 2015, their number has increased to 9,272 in 2020. There are probably a few reasons for this counter intuitive result. One reason is that with Covid,there has been more uptake for properties that are away from large cities. These peri-urban areas are typically where small developers operate. Likewise, many tier-2 cities have seen buyer interest driven by work from home rules.
Liases Foras data shows that between 2015 and 2020, sales grew 22 percent in large cities vs 73 percent in tier-2 cities. These are also regions where large branded developers typically do not have a significant presence. The other possible reason is that with the introduction of RERA, the playing field has been normalized for all . Buyers hence trust smaller developers who are RERA registered as they understand that they have a recourse in case of issues.
And small builderwerealso possibly nimble to quickly launch and deliver small projects that met changing end-user needs vs large builders who had longer lead-time to react.
The author is an independent consultant