The second wave of the COVID-19 pandemic has battered the real estate sector with housing sales declining by 60% and new launches dropping by 53% in the month of April, according to a report by Edelweiss Research.
Demand dropped 60% MoM in April 2021 as the country battled the second wave of the pandemic but was up 92% YoY, mainly due to the low base effect (stringent lockdown in April 2020).
The southern markets of Hyderabad saw a dip of 49% MoM and Bengaluru witnessed a decline of 50% MoM. Demand in MMR and Pune was down by 64% YoY and 65% YoY, respectively as the special stamp duty rate cut window in Maharashtra ended.
Project launches drop by 53% in April 2021
New launches were subdued for the fifth consecutive month. There was a drop in the number of fresh launches by 53% MoM but an increase by 110% YoY, as per the report.
Unsold inventory continues to correct
Unsold inventory continued to correct and was down by 13% YoY with inventory months decreasing to 29 from 33 in April 2020, the report stated.
With demand outstripping supply over the past year, unsold inventory decreased 13% YoY in India in Apr-21. Pune and MMR witnessed the maximum rate of correction in inventory levels at 22% YoY and 18% YoY respectively.
With trailing 12-months’ absorption up 13% YoY, inventory months pan-India reduced to 29 months (from 33 months in Apr-20). Pune and Hyderabad remain the best markets with 15 and 20 months of inventory, respectively, followed by MMR, Chennai and Bengaluru at 28–33 months.
NCR remains the worst real estate market with 65 months of inventory, the report said.
With regard to share in overall sales, MMR and Pune lost 3–4% each while Bengaluru and Hyderabad gained 3–4% each in April 2021. Chennai and Kolkata gained a marginal 1% share each, the report said.
Average prices rose 27% YoY in NCR, followed by 18% YoY in Kolkata and 10% YoY in MMR, but remained range-bound in other cities. However, average prices corrected MoM, by 7% in NCR and 4% each in MMR and Pune, but remained broadly stable in other cities, the report said.
Gradual improvement in the market expected
The pandemic may have battered the real estate market in the first half of FY21, but the pace of recovery in the second half of the fiscal, and more so in the last quarter, makes us believe that the gradual improvement would sustain into FY22, the report said.
Decadal-low interest rates, centre and state government incentives, increase in safe harbour limit, extension of tax incentives for affordable housing, and Covid-induced factors (need for larger homes due to WFH, for instance) should help FY22 go down as a year of growth for companies in our coverage, the second wave of the pandemic notwithstanding.
Consolidation holds the key going forward
Over the medium to long term, we anticipate consolidation in favour of organised developers to gather steam. Moreover, rising capital intensity of the realty business, credit crunch and focus on execution are likely to aid developers with strong balance sheets and established brands.
Developers with robust balance sheets will also benefit from attractive business development opportunities. Stronger players to gain market share going ahead, the report added.