Residential real estate remains resilient despite the second wave of Covid-19

Witness growth in recent months has been driven more by demand and less by price, making it more resilient and sustainable. Despite the temporary hiatus due to partial blockages, strong fundamentals, such as increased affordability, transparency and alignment of demand and supply, will keep demand for residential real estate in the long run. .

To say that the last decade was tumultuous for the Indian real estate sector would hardly be an exaggeration. A series of regulatory moves like demonetization, RERA and GST during 2016-2017 gave a change of face to the real estate sector in India.

Although sales dropped considerably to a new low of 100,000 units in 2017, the underlying sentiment was optimistic. The actions on the water ship came with the promise of transparency and better regulation, which was ultimately favorable to end users. However, what followed was a severe liquidity crisis led by the default of IL & FS that led to the NBFC crisis in 2018.

The NBFC crisis led to a severe confidence deficit in the real estate sector which led to project delays, price stagnation, reduction in new supply and consolidation of the real estate sector which continued until 2020. Through the turbulence economic growth of 2019, when GDP fell to six -the year low and retail inflation soared to 5.5 percent, the residential real estate sector showed resilience, with sales rising 6 percent year-on-year and a demand that exceeded supply, despite attenuated consumer spending.

Keep the ground on solid foundations

In 2020, the COVID-19 pandemic caused industries around the world to become upset. India closed all over the country and focused on remote work on the whole country. The real estate sector, like other industries, had a first success as smaller developers dusted off amid growing liquidity challenges. To end the crisis, most developers focused their attention on generating cash flows by liquidating completed actions to mitigate confidence risk.

With people relegated within four walls to lessen the COVID crisis, the importance of living safely and owning one’s own home was highlighted as never before. This, along with a number of government initiatives to support the economy, saw political rates cut to historic lows to boost consumption and stimulate growth.

The stagnation in prices, coupled with the reduction in interest rates on home loans to a 15-year low of <7%, catalyzed reduced demand and even pushed buyers waiting on the sidelines to make a decision on buying a home. The confidence and confidence of home buyers in the real estate sector was also boosted by a growing presence of organized developers over the years (the share of sales from organized developers increased to 40 percent on 3FY21 from 17% to FY17). The continuing trend of new releases during the current year bears witness to the renewed demand from home buyers and the increased confidence of developers.

According to a recent analysis of the pan-Indian market by Anarock, the seven major cities recorded an increase in launches to Ǫ12021 by 18 per cent on a qoq basis and by 51 per cent on a year-on-year basis.

Residential demand is not declining despite the second wave

The calendar year 2021 began with hope, as vaccinations developed gradually. However, a dramatic increase in the number of new cases of COVID led to a much more virulent second wave that led several states to resort to night curfews and partial blockages to curb infections.

While this may lead to a temporary drop in the resurgent momentum, the demand for residences remains firmly in place. Several factors, such as maximum affordability, low multi-decade interest rates, rising real estate preference as an investment opportunity, and most importantly, the emotional value of the property, drive up demand.

Compared to the first wave, this period has witnessed a 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 potential customers and generate leads. Online construction tracking, the use of virtual reality for site visits, and tours are the order of the day. Better preparation of developers in terms of online activity and customizations with work infrastructure from home have kept the residential segment in place.

Witness growth in recent months has been driven more by demand and less by price, making it more resilient and sustainable. Despite the temporary hiatus, strong fundamentals, such as increased affordability, transparency and alignment of demand and supply, will keep demand for residential real estate in the long run.

The author, Sharad Mittal, is CEO of Motilal Oswal Real Estate. The opinions expressed are personal

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