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This article is more than 5 month old.

Residential real estate remains resilient despite COVID-19 second wave

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Despite the temporary hiatus due to the partial lock- downs, strong fundamentals like increased affordability, transparency and alignment in demand and supply will keep the demand for residential real estate upbeat over the long-term.

Residential real estate remains resilient despite COVID-19 second wave
Growth witnessed over the last few months has been led more by demand and less by price making it more resilient and sustainable. Despite the temporary hiatus due to the partial lockdowns, strong fundamentals like increased affordability, transparency and alignment in demand and supply will keep the demand for residential real estate upbeat over the long term.
To say that the past decade was tumultuous for the Indian real estate sector would hardly be an exaggeration. A spate of regulatory movements such as demonetization, RERA and GST over 2016-2017 gave a facelift to the real estate sector in India.
While sales dropped considerably to a new low of 100,000 units in 2017, the underlying sentiment was upbeat. Water-shed actions came with the promise of transparency and better regulation that was ultimately in favour of end-users. However, what followed was a severe liquidity crunch led by the IL&FS default triggered NBFC crisis in 2018.
The NBFC crisis led to a severe trust deficit in the real estate sector resulting in project delays, stagnating prices, reduction in new supply and consolidation in the real estate sector that followed till 2020. Through the economic turbulence in 2019 when GDP slumped to a six-year low and retail inflation soared to 5.5 percent, the residential real estate sector displayed resilience with sales surging 6 percent y-o-y and demand exceeding supply despite muted consumption expenditure.
Holding ground on strong fundamentals
In 2020, the COVID-19 pandemic sent industries across the world into a tizzy. India went into a countrywide lockdown, and remote work was thrust upon the country as a whole. The real estate sector, like other industries, took an initial hit, with smaller developers biting the dust amid growing liquidity challenges. To tide over the crisis, most developers turned their focus on cash flow generation by liquidating completed stock to mitigate trust risk.
With people relegated within four walls to abate the COVID crisis, the importance of safe living and owning one’s own home was highlighted as never before. This, along with a spate of government initiatives to support the economy saw policy rates being reduced to historical lows to invigorate consumption and stimulate growth.
The stagnancy of prices, coupled with the reduction of home loan interest rates to 15-year lows of <7 percent catalysed the subdued demand and even pushed buyers waiting on the side lines to make a decision about home purchase. Homebuyers’ confidence and trust in the real estate sector was also boosted with a growing presence of organized developers over the years (share of sales by organized developers increased to 40 percent in Ǫ3FY21 from 17 percent in FY17). The continuing trend of new launches in the current year bears testimony to the renewed demand from homebuyers and enhanced developer confidence.
According to a recent analysis of the pan-India market by Anarock, the top seven cities recorded an increase in launches in Ǫ12021 by 18 percent on a q-o-q basis and by 51 percent on a y-o-y basis.
Residential demand unabated despite second wave
The calendar year 2021 began on a note of hope with vaccinations being rolled out in a phased manner. However, a dramatic increase in the number of new COVID cases ushered in a far more virulent second wave which led several states to resort to night curfews and partial lockdowns to curb infections.
While this may create a temporary blip in the resurgent momentum, the demand for residential remains on firm ground. Several factors such as peak affordability, multi-decadal low-interest rates, increase in the preference of real estate as an investment opportunity and above all, the emotional value of homeownership are driving the demand higher.
As compared to the first wave, this period has witnessed rapid adoption of technology in the Indian real estate sector. As physical interactions became increasingly restricted, developers have adopted digital marketing as a means to reach out to potential customers and generate leads. Online monitoring of construction, use of virtual reality for site visits and walk-throughs are becoming the order of the day. Better preparedness of developers with regards to online activity and customizations with work from home infrastructure has kept the residential segment buoyant.
Growth witnessed over the last few months has been led more by demand and less by price making it more resilient and sustainable. Despite the temporary hiatus, strong fundamentals like increased affordability, transparency and alignment in demand and supply will keep the demand for residential real estate upbeat over the long term.
The author, Sharad Mittal, is CEO at Motilal Oswal Real Estate. The views expressed are personal
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