3 min read.Updated: 29 Jul 2021, 12:16 PM ISTLivemint
The jump in sales will also depend on how the pandemic shapes out
A third wave in the next few months and other economic disruptions could impact sales growth negatively
With the macroeconomic factors this year expected to mirror 2020, there is a possibility of a 20-35% spurt in housing sales in the monsoon months in 2021 as was seen last year, says a study by JLL.
"While fuel prices have risen in recent months along with rising inflation, the RBI has retained its accommodative stance and kept the repo rate unchanged. With the expectation of moderating inflationary pressures as supply-side disruptions are sorted and with home loan rates sticking to their historic lows since last year, the support structure for sales of homes seems intact this year in the upcoming monsoon season as well as the approaching festive season," the study said.
Post the unlocking process which followed the first covid wave last year, the healthy monsoon ensured that the inflation fell to well below 6% by December 2020 and remained so till the end of FY21. This provided the RBI leeway in keeping the repo rate at historically low levels, thereby helping the commercial banks in maintaining home loan rates at near-record lows.
“The residential real estate sector can expect buoyancy in the sale of residential properties this year in the monsoons and the upcoming festive season, just as last year where there was a 34% jump in the corresponding period compared with the immediately preceding quarter. The jump in sales can be 20-35% this year depending on how the pandemic shapes out. If there is a third wave in the next few months, other economic disruptions could impact sales growth negatively, which may then hover around the lower range of our expectations," said Dr Samantak Das, chief economist, and head research and real estate intelligence service, India, JLL.
As seen in 2020, with the decent rainfall recorded across the country, there was ample headroom for RBI to keep key rates at record lows since the inflation was under check. This encouraged a number of people to come forward and buy homes. Now in 2021 as well, the home loan rates can be expected to remain close to their historical lows, providing a good opportunity for the residential realty sector to do well in the rainy season.
When rainfall is ample, the inflation continues to be within manageable levels, which allowed enough headroom to the RBI to keep the policy rate low.
JLL said even this year when there is a prediction of normal monsoons, there is a likelihood of the trend to continue as seen in the last two years, and the RBI should be able to keep the repo rate at the current levels.
"This will allow the commercial banks to offer home loans at the existing attractive rates which will continue to drive housing sales. With most home purchases supported through home loans, the lower home loan interest will continue to have a positive impact on EMI outflows," JLL said, and added that it expects house hunting to start in a major way in the current and coming few months, especially in regions such as Mumbai Metropolitan Region and Pune, as buyers look to evaluate projects and residential corridors based on waterlogging, seepage, low lying areas prone to flooding and other issues to eliminate locations or projects. The upcoming festive season will also act as a catalyst during this period to support housing sales.
Housing credit growth has consistently been in the positive territory since 2019 and only saw a negative growth in April 2020, which coincided with the period of the most stringent lockdown during covid.
It has shown sharp spikes in the months immediately following the monsoon season both in 2019 as well as in 2020, which reflects that buying sentiment shows an upward trend following the monsoon season. In a market driven by stable pricing, attractive offers, low interest rates and changing homebuyer preferences, a good monsoon will keep the sentiment positive.
Normal monsoons also result in a good crop, which ensures that farm and rural loans, which form a sizeable chunk of priority sector lending and also bad debts, have lower defaults and this positively impacts the banks’ financial results going forward. This will provide further impetus in the financial sector, particularly PSU banks.
A better rural demand, spurred by good rainfall, will also help the sales of white goods such as televisions and refrigerators. Generally, a positive domestic consumption sentiment would translate into higher capital investments as well by households. Also, if inflation is kept under check, it allows for a portion of the household income to be saved. Given that a good monsoon will support RBI in keeping the repo rate down, and in maintaining an accommodative stance, a low-interest rate regime will be seen in the country going forward.
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