The demand for housing stands redefined post the COVID-19 pandemic. There has been a noticeable shift in the mindset of people and there is a rush to own a piece of residential real estate, at least in the urban centres.
Several factors are seen to drive this changing trend. During the first phase of the pandemic, we noticed a severe wealth erosion across other investment classes, such as gold, equities, and mutual funds. It was only real estate that was strong and resilient to weather the storm. Many people who leased apartments were treated differently by the housing societies during the pandemic, and this was also instrumental in triggering the need to own a home.
A combination of these factors has resulted in the rising demand for housing as evident from the trends across the major cities. While Q2 2020 was a total washout as the developers and buyers were clueless on how to deal with the crisis, the residential real estate market devised ways and means to steer clear of the crisis and pave the way for a new growth trajectory.
Exemplary revival
It is interesting to observe that since 2020 nearly 2.90 lakh units have been launched across the seven major cities in the country and sales recorded were approximately 2.83 lakh units. This indicates a steady demand for housing, despite the two waves of the pandemic that we went through. Post the first wave, the sales and launches have been on a continuous rise with a momentary pause in Q2 2021 owing to the second wave of the pandemic. The revival in Q3 2021 was exemplary with the sales volumes across each city doubling compared to the previous quarter.
Despite rising sales and launches, the available inventory has risen marginally by 3% on year at 6.55 lakh units as of Q3 2021. Despite the highs and lows, the currently available inventory levels are in line with that of Q3 2019.
However, the prices of residential real estate have been rising slowly and steadily. While the demand has gained momentum, the developers have been cautious to keep the prices in control. They are more focussed to ensure continuity of the construction and liquidating the available inventory. The rising prices of steel, cement, and raw materials have been continually pressurising the developers. Despite this, the prices appreciated modestly by 4% annually as of Q3 2021 as the developers are cognizant that abysmal price hikes will derail the demand cycle.
The mega infrastructure developments across the country and within the cities have been instrumental in unlocking the real estate potential of many peripheral regions. Large projects such as DMIC, Bharatmala Pariyojna, Industrial parks and corridors, and several expressways being executed along with new roads, ports, and flyovers have been integral in creating new real estate markets across asset classes. Industrial, warehousing, and logistics are some of the asset classes which will witness development along with these projects, and will eventually catalyse the need for housing.
Urban demand
Within the metropolitan and major cities, there is a distinct rise in housing demand in the peripheral locations as the connectivity stands improved with the city centres and economic hubs. The metro rail network across the major cities is undergoing expansion and shall enable improving the connectivity of the peripheral markets. This has resulted in rising demand for housing in these newly evolved geographies and is evident from the rising share of residential launches. As of Q3 2021, nearly 68% of the total launches were in the peripheral regions and this share is anticipated to rise.
During the last three years, the western markets comprising Mumbai Metropolitan Region (MMR) and Pune have had the highest share of the market in terms of launches and sales. The diverse economic base and presence of many large and listed developers in these cities along with Maharashtra being the first state to successfully implement Real Estate Regulatory Authority (RERA) have resulted in building the buyers’ confidence. The government’s stance to lower the stamp duty last year has also supported strong housing demand recovery. The effect of these policy changes can still be seen as evident from the continued momentum of housing sales even after the withdrawal of the benefits seven months ago.
The West zone accounted for 46% of the launches and 48% of the sales, across the top seven cities of India for the period 2019 to Q3 2021. The developers are seen to be cautiously infusing supply to keep the demand-supply equation stable. The share of launches in the West zone has reduced from 52% in 2019 to 41% in 2021. Aided by the government’s incentives and low prevailing mortgage rates across the country, the sales share has risen from 47% to 50% during the same period.
The South zone comprising Bengaluru, Chennai, and Hyderabad together are the second most active market. Together these cities accounted for 36% of the launches and 30% of the sales between 2019 and Q3 2021. While the share of sales has remained stable at 30% throughout the period, the share of launches has increased significantly. It has increased from 29% in 2019 to 42% in Q3 2021. This rise in the share of launches is mainly due to the increased supply in Hyderabad primarily in the last two quarters as many projects were awarded approvals.
Focus on sales
The National Capital Region (NCR) in the North zone accounts for nearly 14% share of the launches and 17% of sales. The share of sales and launches have reduced marginally during the period. NCR accounted for 15% of the launches in 2019, which has reduced to 12% in 2021. Sales have also reduced from 18% to 15% during the same period. As many large and listed developers make a foray into NCR the situation is likely to change in the future.
It is evident that the residential real estate market is going to expand in the coming years. 2019 was the new peak for the residential segment post the reforms that were initiated in 2015-16. However, the COVID-19 pandemic temporarily paused the growth in 2020. The sharp V-shaped recovery that we have observed, makes it evident that the growth trajectory will continue into 2022 and beyond. However, there may be some slowdown if the interest rates increase. The prices are likely to increase in the future periods but the growth will be more rational.
The growth of the residential segment across the country is now ensured given the robust demand, changing demographics, and realisation of the need to own a hard asset. Prices are likely to increase linearly as demand rises with the receding pandemic and improving economic situation.
The writer is MD & CEO, TRESPECT India.
