India’s real estate sector sees K-shaped recovery

The graphs for both residential and office segments had curved up from the troughs of the lockdown-induced June 2020 quarter. Sales of houses in tier-I and tier-II cities, which research firms typically cover, registered strong growth. This was driven by factors such as a cut in stamp duty by some states (Maharashtra and Karnataka), low home-loan rates, and discounts from builders on top of static or declining prices.

The growth figures provided by the key research firms are different, given differences in their coverage. For the March 2021 quarter, Anarock put it at 29% on a year-on-year basis and Knight Frank at 44%. But both figures suggested that the residential sector was recovering, and was witnessing higher sales than in the pre-pandemic period.

In the office segment, while the trend was rising, growth remained a distant prospect. In the quarter to March 2021, Jones Lang LaSalle put net absorptions (new space taken up minus old space given up) at 36% lower than March 2020 levels, Cushman & Wakefield 49% lower.

High Inventory

The buoyancy in the residential segment saw builders step up on new launches. Compared to the December quarter, the number of new houses entering the market increased 18%, according to Anarock. Greater Mumbai, Pune and Delhi NCR accounted for about 70% of these launches. Further, about 30% of launches were in the affordable housing segment (price of up to ₹40 lakh, as per Anarock) and 43% in the mid-end ( ₹40-80 lakh).

With new launches marginally exceeding sales for the quarter, the combined inventory of unsold houses in the seven main markets increased 1% to 642,000 units, shows data from Anarock. The inventory overhang covers a wide range. In Delhi NCR, it is 85 months. In other words, at the current rate of net absorption (sales minus new launches), it will take 85 months to clear the stock of unsold houses. In Bengaluru, it’s 28 months. New launches and the inventory overhang will put pressure on builders to hold prices.

Price Stability

The past year has been a buyer’s market. On the one hand, there’s a glut of unsold houses, including a large pool of ready houses, which carry lower risks of ownership. On the other hand, prices in six of the seven leading markets have either been stable or have declined. According to data from real estate portal 99acres.com, 30% of the 537 localities tracked by it across these seven markets saw prices decline in the March 2021 quarter over the March 2020 quarter. For another 43% localities, the price increase was only up to 5%.

Hyderabad was the exception. Among the seven markets, it recorded the highest growth in residential sales in the March 2021 quarter, as per all research reports. Further, this growth was accompanied by a rise in prices in most of the 32 localities in Hyderabad tracked by 99acres.com.

Sentiment Dip

Looking ahead, sentiment for the residential space remains more positive than the office segment. A survey of real estate stakeholders by Knight Frank, Ficci and Naredco showed 64% of respondents expected sentiment for housing sales to ‘improve’ in the next six months. By comparison, this figure for the office segment was only 34%. In the December 2020 quarter, both values were higher, and the gap between residential and office segments lower.

This survey was done between 31 March and 12 April. Since then, lockdowns have returned and intensified. Private offices have shut again. Even the office deals in the March quarter were driven by transactions where clients had committed to taking new space entering the market. The latest report of Cushman & Wakefield observes: “As occupiers continue to review, revise and fine-tune their space strategies over the next 3-9 months, market activity could remain flat in the short term with limited deal closures." For developers, the action remains in the residential space.

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