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Second covid wave had a muted impact on residential real estate business

homebuyers have been leaning towards finished inventory and developers with an established track record of on-time and quality project completion. (Photo: Mint) (Mint)Premium
homebuyers have been leaning towards finished inventory and developers with an established track record of on-time and quality project completion. (Photo: Mint) (Mint)

In the June quarter, sales of residential real estate in the top 8 cities fell 19% to 68.5 mn sq. ft from 84.7 mn sq. ft in the March quarter. The sequential drop was on a high base, as the fourth quarter of FY21 had witnessed the 2nd highest sales since FY12

BENGALURU : The second covid wave had a lower impact on the residential realty sector, while the increased focus on vaccination and reopening of the economy will help home sales recover to pre-covid levels in the short to medium term, rating agency Icra said in a note on Thursday.

In the June quarter, sales of residential real estate in the top eight cities fell 19% to 68.5 million sq. ft from 84.7 million sq. ft in the March quarter. The sequential drop was on a high base, as the fourth quarter of FY21 had witnessed the second highest sales since FY12.

However, sales more than doubled compared to the 33.7 million sq. ft in the June quarter of the previous year.

According to Icra, despite the disruption in the March quarter, demand remained intact, driven by multi-year low interest rates, preference for bigger and better homes following the shift to a hybrid working model and pent-up demand.

“The impact of the second wave was lower than the first wave due to various factors, including the continuing trend of working from home by salaried employees, localized lockdown restrictions and a higher degree of certainty regarding future income levels and stability. The IT-ITeS sector witnessed robust financial performance with increased hiring, which supported the demand from employees of the sectors," said Kapil Banga, sector head and assistant vice-president, Icra.

Homebuyers are looking at ready-to-move-in units from developers with a track record of on-time and quality project completion, Icra said. This has also led to the increased market share of the top nine listed realty players, from 6% of sales in FY17 to over 16% in FY21.

The long-term trend of consolidation, which has been a result of evolving consumer preferences as well as a sustained increase in market share of large developers among recent launches, is likely to continue and will support further improvement in the market share of larger and stronger developers.

With construction impacted to some extent and decline in sales for the top nine listed players, collections also got hit, registering a drop of 27% quarter-on-quarter.

Further, extension in RERA timelines in certain states by six to nine months along with a reduction in approval costs/construction premiums provided by certain states for a limited period has provided flexibility to defer outflows in case of collection weakness.

Thus, notwithstanding the moderation in collections, the cash flow from operations for larger developers have not witnessed a steep decline.

However, a shrinking market share and cautious lending approach by NBFCs and HFCs may create a challenging operating and financing environment for small real estate developers in the near term.

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