The Fall and Rise of the Indian Residential Real Estate Market!

Market Overview

Starting of the pandemic

The COVID-19 pandemic had an unprecedented impact on Indian real estate, with the sector losing over INR 1 lakh crore since the pandemic began. According to industry estimates, the pandemic resulted in a significant financial squeeze for real estate developers. Due to the loan crisis, residential sales in India’s top seven cities fell from four lakh units in 2019–20 to 2.8 lakh units in 2020–21. Because of the COVID-19 pandemic-related lockdowns, construction and sales activity in the entire real estate sector came to a halt. Construction workers from a number of sites also returned home. Demand and supply were both negatively impacted when most states implemented fragmentary lockdowns to prevent the virus from spreading.

2021: A great year in the history of residential real estate

However, the scenario gradually started changing dramatically from the last quarter of 2020. Despite the COVID-19 pandemic’s ongoing cyclical ups and downswings, the Indian residential real estate sector has remained largely resilient. 2021 was primarily driven by end-users rather than investors, contradictory to what generally happens in the industry. 2021 has been a dramatic outlier year in the industry. It was a storm as far as incentives to buy a house are considered. Rock bottom, low-interest rates, ready inventory, and the pandemic fueled the desire to own your personal space, a bigger space. Can’t really say is it because of the subsidies of the government agencies or the banking sector or the pandemic that kickstarted momentum in the residential real estate industry, all over again. Residential real estate had seen a depression past 6–7 years when the economy was doing fabulously well, there were jobs in the market, and wealth accumulation was taking place. In fact, some studies show the number of sales made in 2021 has been historic in the past 10 years.

Mumbai, National Capital Region and Bengaluru were the top housing sales performers in the second half of 2021. Additionally, residential sales in the top seven cities scaled a new high of about 90,860 units in the fourth quarter of 2021, reveals the latest data from ANAROCK. Housing property sales increased by 51% YoY in 2021, with records sales of over 2,32,903 residential units in the year, shows the latest data from Knight Frank India. IT, manufacturing and services remained the top contributors in terms of sector-wise real estate transactions.

Key Market Trends

Growth in New Housing Supply

Between July and September 2021, a total of 55,907 new housing units were sold in India’s eight micro-markets, representing a 59% year-on-year increase. In the third quarter of 2021 (between July and September 2021), the new housing supply increased by 228 per cent year on year across the top eight cities, compared to the 19,865 units introduced in the third quarter of 2020.

Despite the fact that Mumbai has one of the most expensive real estate markets in the country, many factors are currently at work that makes purchasing a home in this city a viable option. According to a recent Indian real estate survey for Q1 2021, home sales in India’s top seven cities increased by more than 29% over Q1 2020, totalling 58,920 units. This is significantly higher than pre-COVID levels, indicating an economic resurgence. In the first quarter of 2021, 62,130 residential units were constructed in the seven cities, an increase of 18% from the previous quarter and 51% year on year. The top seven cities in India are the National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Bengaluru, Pune, Hyderabad, Chennai, and Kolkata.

MMR and Pune, which accounted for 31, 227 units, or 53% of residential units sold in the quarter under review, were the driving forces behind the seven cities’ increase in home sales. MMR sold 20,350 residential units on its own, accounting for 35% of the total 58,920 units sold in the seven cities under consideration. As a result, MMR is the largest home sales market in the country. The sale of residential units in MMR increased by 16% from the previous quarter and by 46% y-o-y.

Urbanization -The Market Propeller

As a result of population and economic growth, the country’s urbanisation has accelerated, with the number of metropolitan towns and cities skyrocketing. This growth is expected to continue in the coming years. The nine largest cities in India are New Delhi, Mumbai, Bangalore, Hyderabad, Ahmedabad, Chennai, Kolkata, Surat, and Pune. With many businesses, technological advancements, and geographical problems, urbanisation begins in these vast cities. India is currently experiencing a housing crisis in urban areas, and more housing will be needed to meet future demand. This demand is driven by the economically disadvantaged population due to a lack of housing policies. Public-private partnership policies have been implemented in some Indian cities to build homes.

By 2030, major cities are expected to house more than 40% of India’s population. According to the Union Ministry of Housing and Urban Affairs, in order to meet the country’s ever-growing urban population, 70% of India’s future cities must be developed. Work from Home became more popular in 2021, and demand for affordable houses with ticket sizes of less than INR 40–50 lakh has increased in Tier 2 and 3 cities/towns, resulting in price increases in some areas. The one-year extension of the income tax credit for affordable housing for both developers and buyers has increased demand even more for this housing lot. The government’s ‘Housing for All’ initiative, launched in 2015, aims to provide affordable housing to the urban poor and build two crore affordable homes by March 31, 2022. This has strengthened this category, and many rules and regulations have been put in place to help the economically disadvantaged obtain affordable housing, such as the Pradhan Mantri Awas Yojna (PMAY) and the GST rate reduction from 8% to 1% for affordable housing market.

The Budget Effect

A number of initiatives have been undertaken by the Government of India with the hope of incentivizing real estate purchases. The announcements made in the Union Budget 2022–2023 will help in creating a thriving atmosphere in the real estate sector.

The government continues to prioritize the affordable housing segment and parallelly looking at ways to strengthen the existing financing systems to provide liquidity to stuck real estate projects. In the first week of December, the Government of India extended the deadline to provide pucca houses to all families in rural India to 2024. The Cabinet decided that the flagship rural scheme, Pradhan Mantri Awas Yojana-Gramin will be provided INR 2.17 lakh crore in additional Central and State funding to achieve its target of building 2.95 crore houses.

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has announced that it will be keeping the repo rate and reverse repo rate unchanged for the tenth consecutive time. Setting the tone for the year, MPC gave a clear indication that it is growth-oriented. Holding the interest will help in increasing the affordability for the consumer and help in holding the current demand trends.

Competitive Landscape

The residential real estate market in India is highly fragmented. Large firms have financial resources to their advantage, whereas small businesses can compete effectively by building expertise in local markets. The top listed developers’ share of the Indian residential market is predicted to rise to 29% in FY24 from 25% in FY21, owing to a robust pipeline of residential project launches.

Recent Development

Godrej Properties, the real estate development arm of the Godrej Group, has extended its existing arrangements with Mumbai-based property developer Shivam Realty to develop a residential group housing project, off the Akurli crossroad at Hanuman Nagar of Mumbai’s Kandivali suburb. This project is an extension of Godrej Tranquil and Godrej Nest and will offer around 7 lakh sq ft of saleable area. To be developed as a modern residential project comprising apartments of various configurations, it is estimated to have a booking value potential of around Rs 1,000 crore.

Tata Realty and Infrastructure Ltd (TRIL), Tata Group’s real estate development arm, is looking to increase its focus on plotted development projects across the country and is eyeing around 20%-30% revenue generation from these developments by the financial year 2023–24, said a top company official.

Hines, the international real estate firm, and Conscient Infrastructure have come up with a development management platform for residential projects with an aim to develop 5–6 projects in 2022–23.

The Clan

If one flower starts blooming in the garden, others don’t stop. Growth is contagious. It is widely accepted that investments in infrastructure can lead to direct and indirect jobs, and usually have spillover effects into other economic opportunities. They come with a multiplier effect, as they call it in macroeconomics. More homes demand more amenities and a better standard of living. Given the thriving scenario of residential real estate, here is the list of sub-sectors that are likely to benefit from this and match the outlier growth of the sector.

Plumbing

Sanitary

Paints

Ceramics

Adhesives

Pipes

Electrical Items

House Insurance Companies, etc

The Continuing Growth

The real estate sector in India is set to experience around 5% capital value growth in 2022 in the residential segment. Certain projections state that the sales momentum is expected to increase in 2022 as prospective homebuyers will continue to prefer bigger homes, better amenities and attractive pricing will keep them interested in sealing the deals. Meanwhile, as work resumes in offices, the recovery in the commercial sector and flight-to-quality trend is expected to keep rents stable to increase in 2022. Additionally, the luxury housing market is poised to touch new heights in the coming year.

The residential real estate sector is in high gear right now and the upswing is likely to continue. India’s NITI Aayog expects that the Indian real estate sector will reach a market size of $1 trillion by 2030 and will account for 13 percent of India’s GDP by 2025. Already the third-largest sector to bring about economic growth, the real estate industry is expected to continue its upward trajectory in 2022. Property developers believe the year will script growth, new trends and dynamics in the residential real estate sector. Since the market is primarily driven by end-users and not the investors, the demand is here to stay. This party in the real estate sector is going to last long. Given the long list of subsectors attached to the industry, the economy post-pandemic is going to rock again with a bang.

This article was published on sukhanidhi.in/blog