BackDeals, low rates helped housing sector battle the covid shocker
The real estate sector fought hard to overcome the pandemic challenge in 2020, with a little govt helpThe pandemic forced both buyers and developers to take the digital route to home buying
PremiumThe real estate sector started the year 2020 with the hope that the worst was behind it, but the covid-19 pandemic and the ensuing lockdown made it wince with a never-experienced-before pain. Sales plummeted by around 80% in the April to June quarter compared to the previous year, according to data from SquareYards, an online real estate transaction platform.
The industry tried to battle out the situation by taking small steps at digitalization and by offering attractive deals, but it couldn’t have gone far without the support of the government. For example, while the Reserve Bank of India slashed interest rates on loans the government extended the credit-linked subsidy scheme.
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On the back of pent-up demand, small innovations and offers, and government incentives, the industry saw a small recovery during the festive season towards the end of the year. However, the road ahead is riddled with challenges. The pandemic has changed home buyers’ expectations in many ways and the industry will need to cater to these changing demands. We take a look at how 2020 panned out for the sector and what’s ahead.
The setback
The year 2020 started with a promising note for the sector as the upheaval caused by demonetization and the slew of reforms, including the Real Estate (Regulationand Development) Act, 2016 and goods and services tax, seemed to have settled down.
What it had not factored in then was the effect of the pandemic, which forced several countries to go into lockdowns. “What we saw in Q2 CY 2020 (April-June) was something that was never seen before. As the pandemic spread and lockdowns were imposed, construction and sales came to a screeching halt, workers migrated to their home towns and the sector stared at uncertainty with the entire quarter being washed out from a business perspective," said Anuj Puri, chairman, Anarock Property Consultants Pvt, Ltd.
Sales plummeted making the sector suffer. “The sector came out of a nationwide lockdown with its housing sales falling over 80% in Q1 and Q2 2020, as compared to the same period in the last fiscal year," said Kanika Gupta Shori, chief operating officer and co-founder, SquareYards.
slight recovery
As the lockdown in India was lifted in a phased manner, sales picked up due to various reasons.
Offers and deals: Realizing the gravity of the situation, developers came up with offers like flexible payment options and discounts, to cater to pent-up demand.
“Sales started to recover from October on account of pent-up demand as well as because of the festival season. In fact, sales were higher in October and November on a year-on-year basis in some cities like Mumbai and Pune, driven by stamp duty cuts by the Maharashtra government," said Mani Rangarajan, group chief operating officer, Housing.com, Makaan.com and Proptiger.com. However, overall, the sales for the entire year is expected to be lower compared to previous years.
Government measures: The government announced some tax reliefs to help developers slash prices (read more at bit.ly/34S2h8V). The benefit of credit-linked subsidy was also extended for another year till March 2021 to boost affordable housing under Pradhan Mantri Awas Yojana.
Moreover, over a decade-low interest rates on loans supported demand.
Digital push: Real estate has largely been driven by physical sales so far, but the pandemic forced both the homebuyers as well as the developers to take the digital route for home buying.
Developers like Prestige Ltd opted for virtual launches. Prestige did five virtual launches this year, and facilitated homebuyers to take virtual tours of the site. “Of 10 virtual site visits, homebuyers now physically visit only the top three identified projects," said Puri.
Then the Maharashtra government allowed online registration of properties. "The developer has to take permission from the authority and the registration is done on the developer’s website. So, the homebuyer does not have to go to the registrar’s office. The stamp duty payment was already happening online through the developer," said Rangarajan.
Also, with work from home becoming a norm in most offices, the demand for residential real estate in tier II and tier III cities has gone up. Also, many homebuyers are looking for bigger houses as many anticipate work from home is likely to stay here for long.
the road ahead
As per data from Anarock, 138,000 units were sold in 2020, a 47% decline from 2019. The unsold inventory fell only 2% from the previous year. New launches fell 46% compared to 2019 to 128,000 units. Going forward, there will be green shoots but it won’t be smooth sailing for the sector.
As the economy has shown better-than-expected recovery post the lockdown, the launch of the covid vaccine may aid further recovery further. “We expect that the increase in sales seen since October will gain momentum in the coming months on account of low interest rates, stagnant housing prices and attractive offers by developers. Demand in 2021 is likely to recover to 2019 levels and may even surpass it if there are no unforeseen negative events," said Rangarajan.
However, prices are likely to remain subdued in 2021 given the high level of inventory, pile of unsold units. “While the residential market seems to have bottomed out in 2020, prices are likely to remain range-bound in 2021. The developers will prioritize clearing unsold inventory and any price hikes will deter the buyer," said Puri.
If you are planning to buy a house in 2021, do your research and you may find a good deal. Prefer a ready-to-move-in property over an under-construction one to reduce execution risk.
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