Real Estate

Affordable housing within reach

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The pandemic brought with it the realisation of the benefits of owning a home. The need for a tangible asset that offers stability and security for the future coupled with the remote working trend fuelled the urge to own a spacious home. The residential sector also remained resilient throughout the pandemic and was quick to bounce back amongst all the other real estate asset classes.

Historically low home loan rates, stable prices and reduced stamp-duty in certain states aided in the translation of pent-up demand into sales. Recovery continued in the beginning of 2021; however, the second half of March this year witnessed the resurgence of the COVID-19 pandemic. The growth trajectory was derailed in Q2 2021 as the second wave hit the nation. Nevertheless, residential sales were far more resilient during the second wave when compared to the first.

Focus on the South

Affordable and mid-housing segments are driving the demand for the residential market in India. The southern cities of Chennai, Bengaluru and Hyderabad accounted for about 58% of the overall launches in H1 2021 of which the affordable segment contributed to more than 20% of the launches. In the first half of 2021, Bengaluru dominated the new launches in the affordable segment with 4,078 units being launched followed by Hyderabad with 2,163 units and Chennai with 1,264 units.

Sales of more than 16,000 residential units were recorded by the southern cities in H1 2021. The sustained levels of residential sales present clear signs of demand and buyer confidence coming back to the market. This segment contributed to 10% of the sales in these markets. In Chennai, the affordable segment contributed to 12% of the overall sales, while in Bengaluru and Hyderabad it accounted for about 10% and 6% respectively.

Residential prices in the southern residential markets have almost remained in the range of ₹4,000-₹4,200 per sq.ft. in the past few years. Developers have been providing moderate discounts, attractive freebies including payment schemes such as no EMIs for a year which has led to a reduction in ‘effective prices’ for prospective homebuyers and fence sitters.

Government initiatives

The property market, especially affordable housing, is driven primarily by the following factors: home loan rates, stability of jobs, pricing and incentives extended by the developers and the government. All these parameters are synergising now, which indicates a comprehensive revival of the housing market.

Home loan rates are at an all-time low with rates hovering around 7%, the net interest rate taking inflation into consideration is around 2% and combined with special incentives by the government and existing IT exemptions on interest and principal will further reduce the net outflow. This trend is expected to continue for some time since the government and RBI are looking to revive the consumption story in the economy. According to JLL research, 85-90% of buyers, especially in the affordable segment, are dependent on institutional funding to buy a home. 95% of the customers who buy in this category are either end users or quasi end users (long-term investors) and any change in the interest will trigger this segment to look at the property market in a positive light. An all-time low interest rate coupled with an enhanced desire to own a home after the pandemic have reinvigorated this category to come back strongly into the property market. The lower rate of interest also means more affordability to buy a home, which is key for this segment.

While COVID has created stress in the stability of jobs in certain sectors and segments, there’s a renewed enthusiasm and the recruitments are at an all-time high in the sectors that drive the affordable category, like IT/ITES, Health sector, BFSI, Industrial and logistics, E-commerce platforms. The stability of jobs is at the forefront of propping up the sales in the affordable segment. Work-from-home/ Work (WFH/W) from anywhere even at 25% levels is going to disrupt and accelerate the housing demand for the next few months. We are witnessing early signs of sustained revival with ready-to-move-in properties being consumed heavily in all micro markets followed by upgradation of 2BHK to 3BHK category for want of space to accommodate WFH concept. Every time the residential market revives the first mover advantage is for the ready-to-move-in category followed by under construction properties. This was seen soon after the Global Financial Crisis in 2008 where the ready to move in, followed by the affordable category, created revival of the property market.

Developer efforts

The housing market witnessed muted sales in the last 4-5 years due to various aspects of the economy and the specific structural changes like RERA/ GST. Developers are leveraging the pent-up demand witnessed post COVID-19. They are wary of increasing the pricing and are focussing on cash flows to complete the under-construction projects. It’s an important factor to note that the launches in the last 12-18 months have been abysmally low and with demand looking up the supply side in certain types and micro markets have gone down. Some of the markets’ prices have started going northwards due to this mismatch in supply and demand. Added to this is an important point that active developers in all markets have shrunk by 50-60% due to the inherent problems the sector witnessed as a result of low liquidity — that has been primarily driven by low sales and thin margins. Launches going down in the last few months and with active developers in each market shrinking, the price can go up in coming months with demand coming back.

Developers have extended discounts and incentives to the affordable category in the form of discounts and freebies. This has made the demand further to go up and is influencing the customer’s decision to buy. It’s notable that the government has given a lot of impetus to the affordable segment and for the first-home buyers-end users by extending and blending the PMAY interest subsidy schemes to suit the end users.

The writer is Managing Director, Residential, India, JLL.

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Printable version | Jan 26, 2022 1:24:55 AM |

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