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    Festive season may bring stability back into real estate sector

    Festive season may bring stability back into real estate sector

    Festive season may bring stability back into real estate sector
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    By Mani Rangarajan   IST (Updated)

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    More than 80 percent of prospective home buyers intended to conclude their home purchase within this financial year.

    Most of the economies around the world have contracted as a consequence of the pandemic and India has been no exception. The adverse impact of the pandemic has reverberated across several sectors including real estate, the second-largest sector in terms of GDP contribution to the Indian economy. Our Real Insight report for the second quarter of the calendar year indicated that new supply and absorption of existing supply have been severely impacted with both declining around 80 percent over the same time during the last year. In fact, over the first six months of this calendar year, residential homes sold in Tier 1 cities have aggregated to a little over 88,593 homes which represent a 52 percent decline on a year-over-year basis.
    However, we have a number of reasons to believe that the worst is behind us. Our Housing.com-NAREDCO sentiment survey has indicated that consumers are cautious but optimistic. More than 80 percent of prospective home buyers intended to conclude their home purchase within this financial year. Further, the survey that comprised over 3,000 prospective buyers, also concluded that real estate is the most preferred asset and is ahead of assets such as gold, fixed deposits and stocks. Volatilities in assets such as gold and stocks have played a huge role in consumers choosing real estate as the most preferred asset for over a third of the people surveyed.
    The ongoing coronavirus pandemic has also re-enforced the value of a home for consumers who feel safe within the confines of their own homes. As more corporates embrace the work from home concept, buyers are also looking to upgrade their homes. More than 40 percent of people surveyed wanted to upgrade their homes given additional space requirements to work from home. We have seen buyers prefer new homes to resale homes on the Housing.com and Makaan.com platforms given that newer homes such as townships provide more amenities and buyers are subject to less inconvenience in the event of a lockdown.
    Similarly, we have seen the proportion of buyers interested in larger homes grow (3BHK+) while the relative size of buyers looking for smaller homes (1BHK) has gone down both in the buy and rental segments. We have also seen some re-alignment in users' preferences on locality with those working remotely willing to compromise their locality of residence for some better-sized homes. In fact, we have seen growth in demand in localities that are located in the peripheral areas of the city.
    There are a few other factors that will eventually drive up the demand for real estate: One is that home loan interest rates have reduced significantly and now hover at around 7 percent, nearly a 15-year low. Secondly, we have seen developers come out with price protection plans, innovative payment schemes and in some cases, a flat discount on the price of the property.
    Flexible payment plans such as no EMI till possession translates into a 5-10 percent discount on the price of the property. Prices of real-estate have not appreciated significantly in most cities across the country except for Ahmedabad and Hyderabad which means that prices are more affordable for potential buyers. States have also started offering a rebate on stamp duty and registration charges. For e.g. buyers in Mumbai, Pune and other cities in Maharashtra will pay a 3 percent lower stamp duty on property registration till December 2020 and slightly higher rates till March 2021. In May, Karnataka has lowered stamp duty on homes in the Rs 20-35 lakh price range to 3 percent from the previous 5 percent. We expect more states to follow suit given their significant decline in revenue collection due to lockdowns over the last few months.
    Over the last six months, we have seen significant growth in the digitisation of the sector. Firstly, over 90 percent of people looking for homes now use the internet for search and discovery of homes and in many cases, have also used property booking platforms to pay a booking amount towards the new home purchase. The use of products such as drone shoots, virtual tours, walkthroughs, locality videos, video calls and webinars have proliferated over the last few months with strong adoption by the buyers and sellers.
    We have seen buyers prefer ready-to-move inventory over under-construction; in fact, over the last few years, the sale of the ready-to-move property has doubled to over 20 percent of new homes sold. Unsold inventory aggregates over 740,000 in the top eight cities which provides widespread for buyers to choose properties. However, buyers should be cognizant that the delivery of under-construction properties may get pushed out given the non-availability of labour and supply chain disruption.
    Based on the above-mentioned factors, we expect sales to pick during the ongoing upcoming festive seasons. Signs of a pick-up in sales are already visible since developers closed mega-deals during the recently concluded Anant Chaturdashi and Onam festivals. The festive season could also see sales grow amid increased interest from the NRI segment because the cost of purchase for this category is even more lucrative currently. If these early signs are any indication, this festive season may prove to be a game-changer for the sector and may unlock better sales
    Mani Rangarajan is Group COO, Housing.com, Makaan.com & PropTiger.com. The views expressed are personal
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