As 2020 comes to an end and businesses restart in the new normal, real estate developers are hoping that 2021 will deliver “good news” in terms of both residential and office absorption.
Low interest rates and government intervention have been welcome moves so far. The trends that have emerged over the last couple of months (October and November) in residential sales look “encouraging” too and specific markets such as Mumbai, Pune, Hyderabad and Chennai are reporting improvements.
Signs of revival
Some initial signs of revival were witnessed with sales increasing 34 per cent in Q3 2020 (July–September), compared with Q2 2020 (April–June). Sales of residential units in Q3 2020 improved in all the residential markets, except for Bengaluru and Kolkata, said the JLL Residential Real Estate Market Quarterly Update 2020.
As sales outpaced new launches, unsold inventory at various stages of construction (across Delhi-NCR, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Pune) decreased marginally from 459,378 units to 457,427 units, said the report. Incidentally, Hyderabad and Mumbai have accounted for nearly 60 per cent of the new launches.
Conversion rates improve
Customer queries are better than pre-Covid levels, say developers, who also claim that conversion rates — from site visits to sales — have improved from what they were before the pandemic. With stable pricing in mid-range homes (of ₹3,500-5,000 sq ft), there is some traction now.
In July to September period, prices remained stagnant across all the seven major markets.
“There has been a surge in investments, both from domestic and NRI buyers, causing all prominent micro-markets to register strong sales across budget segments in Q3 FY21,” Shajai Jacob, CEO – GCC, ANAROCK Property Consultants, said.
Betting on IT towns
The hope is that IT towns like Bengaluru, Hyderabad, Chennai (to a certain extent) and Pune may witness faster recoveries now.
An assessment of ‘years to sell’ reveals that the expected time to liquidate this stock has increased from 42 months in Q2 2020 to 48 months in Q3 2020 because of a slowdown in average sales velocity.
In the backdrop of structural issues like job security and fall in income levels, the uptick in sales is a significant achievement. It points to a better-than-expected recovery in 2021, claim developers.
“In 2021, as consumers and businesses move ahead, the market trajectory will meaningfully improve compared to 2020. The housing sector, with its latent demand potential and much better demand dynamics, is expected to lead the way,” Shishir Baijal, CMD, Knight Frank India, said.
Recoveries, as market sources say, are very micro market-centric at this point of time. This means that two locations within the same city could behave differently; and two cities will also differ from one another. A branded developer whose project is closer to completion over the next two years or so will witness better conversion over projects that may start construction in the next six months or so.
Developer discounts in select areas, delayed EMI payment options, stamp duty waiver, and so on, are seen as factors attracting the home-buyer at present.
In Kolkata, for instance, developers have started coming up with pre-launch offers, discounts and “early booking” offers. In Mumbai, there has been a lowering of prices, with developers offering discounts in order to clear unsold inventory.
“Buyers now seek a home that is flexible to cater to different needs of the future. There has been interest among buyers for investing in projects at the pre-launch stage so that they can customise the home and also get the financial discounts. We clocked sales worth ₹80 crore in the year 2020 and the year ahead looks promising for S Raheja Realty,” Ram Raheja, Director, S Raheja Realty, told BusinessLine.
A word of caution
While there is optimism, a section of developers and real estate consultancy firms have sounded a note of caution. They say recoveries could slow down over the next few months.
Though Nirmal Bang Equities, in a December report, said, “residential sales have increased sharply from October”, many experts attribute it to pent-up demand and say that growth will peter out from February-March 2021. Further, sale prices continue to decline.
Manju Yagnik, Vice-Chairperson, Nahar Group, says the industry recorded good home registration numbers in the last two quarters ending September and December. “(However), the Maharashtra State stamp duty waiver should be continued “till December 2021 for complete recovery”.
Industry sources say demand is being driven by incentives that are time-bound (up to March 2021). Once the old rates are restored, there is a question mark over demand holding up.
A section of builders remains cash-strapped, and liquidity for the sector remains an issue, with funding from PSU and private banks slowing down and NBFCs still under stress. So sales or advances are what many developers are banking on as their primary cash flow. If sales slow down, project completion will be hampered.
In the case of the commercial segment, there is weak demand. Office absorption has fallen in 2020 (over 2019). Estimates of fall in office absorption over last year vary between 25 per cent and 30 per cent or in the range of 29 million square feet.
“The impact of Covid-19 is clearly visible in the sharp slowdown in the absorption of office space since March 2020. Some players are acting cautious and holding back construction of new commercial properties as they evaluate the emerging WFH situation,” Nirmal Bang said in its report.
It went on to add that the commercial segment will be in short supply over the next few months as many developers are neither taking on new projects nor completing existing ones.
However, JLL, in a report, said absorption was at 8.27 million sq ft in the October to December period, indicating a 52 per cent rise over the July-September period. Except for Bengaluru, net absorption of office spaces improved everywhere. The increase in net absorption — nearly 56 per cent — was driven by pre-commitments, with e-commerce, healthcare and FMCG being the major sectors.
Interestingly, Knight Frank, in a recent report, says demand for warehousing remained relatively resilient, correcting by 11 per cent YoY.
“India will be a region that data centre investors, occupiers and solution providers will find hard to ignore, which will, in turn, boost demand for the prime industrial sector,” it added.