Of negative situations and positive outcomes: Assessing residential real estate’s hard road to recovery

Residential real estate in India has managed to come out of the woods after having suffered the acute pains inflicted upon it by the many waves of the coronavirus pandemic. This successful comeback of the sector — arguably the largest employer of unskilled workers in India after agriculture — is reflected in the sales numbers for the January-March period of 2022.

According to our latest report, Real Insight Residential – January-March 2022, a total of 70,623 homes were sold across India’s eight prime residential markets, including Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region, Delhi-National Capital Region and Pune.

During the same period in 2020— the last quarter before the coronavirus pandemic hit India and brought economic growth to a screeching halt, severely impacting real estate—69,555 housing units were sold in these markets, data available with PropTiger.com show.

Even though some might view this nominal growth as insignificant, it underlines the fact that housing sales have reached the pre-Covid levels, a milestone all of us have been eagerly waiting for.

Despite some headwinds due to interest rates once again showing an upward trend from historically low levels, we expect to see an increase in housing sales in the quarters to come because of positive consumer sentiment.

Setting sales in motion: The game-changers

House purchases are typically the biggest monetary purchases of one’s life. That is why monetary considerations make a world of difference when it comes to shaping property investment decisions.

This is precisely why enablers like a record low interest rate regime and government incentives in the form of credit-linked subsidy schemes & tax deductions under Section 80EEA must be given due credit for driving home sales in India back to pre-Covid levels. Other monetary enablers in this list have been the stamp duty and circle rate reductions by various states.

 But, it would be an incomplete story to credit only these monetary factors for this recovery. In fact, the repo rate has been hovering at sub-6% levels since June 2019 and the government led subsidies too have been in effect for some time now. Despite these monetary incentives, the urban population in India showed an imperviousness to housing ownership amid a spike in instances of project delays and developer insolvencies. In an atmosphere like that, asset-light approaches like rentals and co-living looked more appealing to people of a country where immovable property has traditionally been the go-to option.

The pandemic, however, came as a reality-check, upending the appeal of an asset-light model. In what could be termed as a really long and hard lesson, the pandemic taught all of us the true worth of homes. Consumers’ relationship to their homes has changed for ever and the concept of home-ownership has received a major boost. The pandemic also led to a shakeout in the developer community and only the fittest have survived. Developers have become very sensitive to consumers’ interests and take their commitments very seriously.

The normalization we have seen in the sales numbers in the March quarter is a reflection of these factors.  

Future perfect: What needs to be done?

For this growth momentum to continue in the future, all stakeholders have to ensure that there are no disruptions to the rekindled consumer spirit, whatsoever. It would be the right thing for the government to announce extension of housing-centric incentive schemes that have either reached deadlines or are nearing end-of-life.

 This is certainly no time for states to roll back circle rate changes. In fact, if anything, states need to rethink the entire stamp duty regime and continue to encourage home purchases through cuts. Rising interest rates is going to be a reality we cannot avoid so support from the government from other quarters needs to continue.

While supply side pressure is making it really difficult for real estate developers to not pass on the increase in input costs to end-users, they would need to be very calibrated in their approach to raising prices so as to not upset the sales momentum that is currently there in the market.  Most of all, developers should not take their eyes off the ball on project completion deadlines because that could very quickly change the positive consumer sentiment that is visible after a long time.

Consumer spirit, in short, has the potential to make it or to break it for the real estate sector. Concerted efforts from all stakeholders must be made to keep it ignited. 

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