India’s real estate sector is on track of attaining pole position in the coming quarters. After displaying tremendous resilience during the nationwide lockdown last year and registering huge sales in Q3 & Q4, FY21, the brick-and-mortar sector is in a promising position to chart its next level of growth.
The positive response from homebuyers towards the property industry post reopening of the economy was heartening for industry leaders as they feared another steep collapse similar to what happened post demonetization. However, those nerves were allayed as homebuyers entered the property market in droves to fulfill their need for homeownership, buoyed by low-interest rates, stamp duty cuts, attractive pre-payment plans and offers by real estate developers.
According to an industry report, housing sales in top seven cities increased by 29% and new launches swelled by 51% in Q1,2021, as against the corresponding period in 2020. Delhi NCR, Mumbai, Pune and Bangalore accounted for more than 80% of the sales in the previous quarter. Micro-markets such as Noida and Gurgaon saw a double-digit increase in property prices with growth of 11% and 13%.
This favorable momentum will continue in the coming quarters as the center and state governments decide to continue with the incentive measures, looking at the spectacular comeback of the real estate sector. With the vaccine inoculation speeding up across the country, job markets opening up again in various industries, homebuyers have gained more confidence to invest in housing, since the market is at its most affordable for buyers in years.
So, why are we saying that the real estate sector will witness tremendous growth in the coming quarters! Well, rapid urbanization, growing working professionals, rise of nuclear families, low interest rates and the need for a home amidst the pandemic, will collude towards a housing boom. Let’s look at some factors which will pave the next growth story for the realty sector.
Behavioral transformation towards homebuying
While the pent-up demand for housing will push the growth of the real estate sector, the behavioral transformation of consumers will herald a real estate renaissance soon. Most of the home buyers in the market are millennials who are keen on giving up the rental option and buy a house. A 5-year rental outgo of a standard house equals 50% of the EMI of a new house in a suburban location. Also, the pandemic has fuelled the need for larger spaces. So, homeowners boxed up in tiny apartments are keen to move up the property ladder and own a larger home or buy a second home outside the city as a retreat. This change in attitude towards home buying will pave the way for tremendous growth of the property sector.
Decline of stressed assets a good signal for growth
The real estate industry was bogged with an oversupply of real estate assets between 2014 and 2020. Pumping of cheap money into the real estate sector by unscrupulous developers resulted in low-quality housing that homeowners refused to buy. The NBFC crisis of 2018 plugged the flow of this cheap money and led to a liquidity crisis. A-grade developers with strong balance sheets survived this calamity and moved ahead. Consumer preferences shifted towards reputed developers and consolidation happened. Today, stressed assets are on a steady decline in many organized property markets and new launches are on the up, a signal that the real estate market is not far from witnessing the good times.
Low lending rates, trust of homebuyers to fuel demand for housing
The jump in home sales during Q1 2021 can be attributed to the low-interest rates, stamp duty cuts and reduction in circle rates. Cheaper loans have been a favorable incentive for homebuyers who want to fulfill their dream of buying a home. The low lending rates have been a boon for developers too as it has improved buying sentiment and led to better sales. Real estate developers have been successful in decreasing their level of debt and trim their loan books. This will help strengthen the core of the real estate sector.
Also, the market is now dominated by A-grade developers having strong balance sheets, stellar records in completion of projects and delivery and quality projects. Homebuyers have veered towards such developers looking at their credibility and transparency in business and towards customers. This has amplified the trust factor in the property market which will augur well for the sector in the coming months.
The second Covid wave may have given the real estate sector a bit of a scare, but it won’t shake the confidence and will of industry leaders who have withstood the ravages of last year’s nationwide lockdown and first covid wave. The foundations of the sector are strong today, the mistakes have been learned, the trust in the sector is back and the road ahead is an optimistic one. The real estate sector will zoom to glory with time as India successfully bends the Covid curve in the coming days.
