Signs of recovery, but challenges remain in real estate

Both launches and sales grew in Q3 of 2020 after the lockdown began to ease, with residential market doing better than expected. By M.A. Siraj

There is hint in the air that the realty market is showing signs of recovery. Knight Frank’s ‘India Realty Report’ for Q3 (July – September 2020) says sales and supplies that plummeted during Q2, a period coinciding with complete lockdown of the economy, have shown upswing during the Q3 period. The report, that focuses on top eight cities across the country, points out that launches grew by four-and-a-half times and sales by two-and-a-half times compared to Q2 of 2020. The residential market has displayed a better than expected recovery in Q3, given the macro-economic challenges and resumption of lockdown in July that impacted every sector of the economy.

Shishir Baijal, GM, Knight Frank, while releasing the report on a zoom platform, said, the bounce back in the quarter is promising, though the sector is still not out of the woods. While the sale of home units showed a 247% rise on a quarter-to-quarter (QoQ) basis the launches were up by 45 per cent. Mumbai witnessed the largest rise during September, largely attributed to 300 bps cut in stamp duty by the Maharashtra government. Mr. Baijal said the recent successes by REITs and entry of new players in the field serve as an index of long-term confidence of investors for office space.

Though the decline of demand due to general reluctance to buy homes has been the hallmark of the year, the residential sector was also impacted by liquidity crunch, supply chain disruptions, rise of the costs of construction material and large scale exodus of labourers from urban areas. However, the demand showed picking up in Q3 mainly due to fall in residential prices, aggressive marketing of ready inventory and offer of freebies and discounts. Fall in home loan rates, lowest in several decades,extension of moratorium on loan instalments and partial return of construction workers also helped.

The report notes that weighted average prices went down in the range of 3-7% in six of the eight cities in the reckoning during the period. Bengaluru and Hyderabad were the only markets that saw prices grow on year-on-year (YoY) basis as these were predominantly end-user markets.

Decline in inventory

Homebuyers preferred ready or near-ready inventory to minimise completion risk which reflected in the average age of inventory staying at 16.9 quarters in Q3 2020 compared to 16.2 quarters a year ago. Developers also were noticeably keen to liquidate older inventory before new launches. Inventory level levels decreased from 0.44 mn units in Q3 2020, 1% less than a year ago. The sector eyes the festival season in the next quarter as developers expect some fillip to sales. The near-term outlook on sales continues to remain challenging and depends completely on how the pandemic impacts the economy in the months ahead.

Office market

The Indian office market was adversely affected due to the fallout of the COVID-induced lockdown during the last six months. Most of the eight principal markets were under severe lockdown during the period leading to sharp decline in transactions as well as new completions. Businesses deferred expansions, focus shifted to controlling costs, social distancing norms and remote working ensured that corporate offices were working at 30 to 50% capacity in most cities. However, with the unlocking of the economy since July 2020, the market traction has started to improve in tandem as total transactions and office completion have recovered by 80% and 126% respectively, in Q3 in comparison to the preceding quarter, the report notes. Transactions exceeded new completions during this period and helped keep rental levels flat or positive in four of the eight markets under coverage, while rentals fell in the range of 1-6% in rest of the markets.

Rajani Sinha, National Director (Research) said while work from home as a concept has proved to be an effective business continuity measure, the occupiers are expected to look at office space usage more strategically by bringing further innovation to include aspects like social distancing, health benefits and sustainability.

Chief Economist Gulam Zia pointed out that bottlenecks are easing during the lockdown and the RERA authorities have shown flexibility by extending the deadline for completion.

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