How would Indian residential real estate fare in 2021-22?
To know the future, knowing the past is undoubtedly important. In this context, the year 2019 – 2020 has been the year that has ended with the onset of the pandemic and the year after was fully plagued with the onslaught of the lethal effects of the global pandemic. As all industries languished under the pressure of lockdown and restrictions, real estate also reeled under the unprecedented pressure of lack of sales, reverse migration of labour, liquidity crunch, unsold inventory and a plethora of other issues. As the real estate sector has a major share of employment generation and contributes fairly to the country’s GDP, the government intervened. There were a series of measures like reduction of bank repo rates by the central bank, an extension of government subsidies for affordable housing, reduction of the cash reserve ratio, reduction of stamp duty clearance, etc., which helped the sector to regain the confidence to a considerable extent and spruce up the sales which started to take an ascending curve in the first quarter of 2021.
Although there was a rampant loss of jobs and the purchasing power in the hands of the consumers plummeted along with a dreary fear of uncertainty, the sales in the last quarter of the calendar year 2020 showed a sharp increase. The quarter of October-December 2020 witnessed a robust sale of housing and apartments across all the major cities and the markets of the country. The experts opine this is largely due to multiple and lucrative discounts and offers being flaunted by the developers across the cities along with the limited period stamp duty cuts in states like Maharashtra. The experts further state that these offers collectively gave the buyers a benefit of somewhere between 5% to 15% of property cost. Additionally, the reduced rate of interest on home loans also enhanced affordability, attracting buyers.
The residential sector of India’s real estate industry witnessed a grand recovery from the plunge it had gone into in the period of lockdown. The plight of the recovery in most of the major markets came as a surprise to many developers, investors, and speculators as the sales in the Q3 of the year 2020-21 spruced up by almost 85% to that of the Q2’s figures. In most markets, the search activity by the prospects in the digital platforms went up by 30% to 40% to that of the pre-Corona times.
In most of the markets in the top metros of the country, there was an upsurge of sales as Kolkata’s sales went up by 68%, followed by Ahmedabad with 64%, and the sales in Mumbai Metropolitan region and Bangalore increased to about 60%. Although the sector registered more sales, the new project launches plummeted by almost 68%. This decrease of the new launches along with higher sales brought down the unsold stock to 66 months in Q3 from an average of 109 months in Q1. Undoubtedly, this is a sign of sentiments surging higher not only in the affordable segment of the residential sector but in the luxury segment too, as reported by various surveys and statistics.
The Immediate Future
Following this trend, the budget was announced with a grant of one more year of deduction of Rs. 1.5 lakhs on the interest on loans taken on the purchase of affordable houses with a tax holiday of one more year till March 31st, 2022. The Finance Minister has also allowed tax exemption for notified affordable housing projects. Apart from the residential sector, the Finance Minister assured that the government would ease debt financing of InVITs and REITs by foreign portfolio investors by the suitable legislature.
The government’s infrastructure developments were also announced in the proposed budget, which would pump money into the sector. The stressed asset resolution mechanism was also proposed to be eased by the government by the e-Court system soon to be introduced, which would provide alternate debt resolution ways, ensuring more liquidity for the sector. All these progressive measures would certainly spew enough liquidity to the realty sector, which would help boost the new launches and the buyers’ sentiments even higher.
With all these developments in the offing and keeping the current market trends in view, it can well be predicted that if the bank interest is low and the incentives for the buyers continue, there would be a considerable improvement of the unsold stock instilling more liquidity to the sector which the industry needs. As witnessed, the residential sector is in the state of buyers’ market, which can be predicted to remain for the next two quarters or for the year till the end of 2022. Of course, after that, the sector can turn around with enough liquidity for the prices to come up and gradually become a sellers’ market in the coming years. It goes without saying that the prices are at their lowest at this point in time, and it may not be realistic to expect even more price correction as the sales have already picked up, and so it can be comfortably concluded this is the best time to buy homes and property.