REAL ESTATE SALES: RELAPSE & RECOVERY

Just when the real estate sector was on the verge of recovering, the second wave of Covid-19 hit.  The industry players expect it to be a short term dampener. Realty+ Report The recent spike in Covid-19 cases across the country has started showing a negative impact on the recovery the real estate, which it had witnessed in the last few months. The fear of lockdowns has spurred the exodus of construction workers from major cities. This threatens to reverse the gains the realty sector has seen around Diwali last year. However, the festival season of Indian New Year across the country has brought some optimism in the residential real estate sector. India’ eight prime residential markets showed a quarterly increase of 12% in the January-March quarter (Q1) of CY (calendar year) 2021 compared to Oct-Dec Quarter of 2020. The prime driver being the stamp duty and circle rate reductions in Maharashtra and Delhi to boost housing sales.   HOUSING SALES TREND TILL NOW  In a major trend reversal over the last eight years, the once-most active housing sales markets of Delhi-NCR dropped sharply in their sales share. The western markets of MMR and Pune witnessed most housing sales among the top 7 cities, ANAROCK data reveals. As per Knight Frank, of a total of 58,300 homes sold across the top 7 cities in Q1 2021, MMR and Pune together accounted for an impressive 53% share, while NCR contributed just 15%. In 2013, of a total of 3.19 lakh units sold across the top 7 cities, the two Maharashtrian cities contributed 33% while NCR comprised the highest share of 37%. The primary southern markets Bengaluru, Hyderabad and Chennai whose contribution stayed relatively between 26% and 35%.   Average prices for ready-to-move and under-construction properties During Q1 2021, 71,963 units were sold almost 44% more than in Q1 2020. This growth in sales also encouraged developers to launch new projects which are reflected in the 76,006 units launched during the quarter, substantial growth of 38% year-on-year. As per the data of sales bookings in primary residential markets of eight major cities, housing sales in Mumbai rose 49% year-on-year to 23,752 units in January-March 2021. Pune saw a 75% rise in sales to 13,653 units. In south India, housing sales in Bengaluru went up 18% to 10,219 units, while sales in Hyderabad rose sharply by 81% to 6,909 units. Chennai witnessed 36% growth to 4,058 units. In the Delhi-NCR market, sales were up 24% at 6,731 units. Housing demand in Kolkata increased by 22% to 3,596 units during January-March 2021, while Ahmedabad saw a 34% rise in sales to 3,045 units. The experts attribute increase in sales of homes in cities to rising preference for home ownership, home loan interest rates at multi-decade lows of sub 7% coupled with substantial correction in prices as well as an increase in household savings. The full impact of the second wave remains to be seen going forward but many industry players are confident of the sales to continue.  The developers concern is that if there is a full-blown lockdown and the second wave persists for a longer time, migrant labour may start leaving impacting the sector’s overall recovery. Many feel, the sales during April – May 2021 to be lower than expected, but not as bad as it was in 2020. On the supply side, a total of 53,037 units were launched across India during the three-month period, which saw the Union Cabinet approving a Bill to set up a Rs 20,000-crore Development Finance Institution to offer long-term capital support for infrastructure development in India. This marked an annual growth of 49% in housing supply. A quarter-on-quarter (QoQ) comparison shows new launches declined 2% when compared to the last quarter of CY20. No extraordinary upwards movement was seen in average prices of property in the primary or new homes market. While annual growth remained largely flat or in low single digits in most markets, Ahmedabad and Hyderabad stood out, with 5% annual growth in average rates of property.      LUXURY HOMES SALES DELHI: Total absorption or sales of luxury home units in Delhi/NCR increased by 54% from 709 units in February 2020 to 1095 in February 2021 NCR: Total sales witnessed the highest increase of 54% from February 2020 to February 2021. Adding to the league, month-wise comparison from January 2021 to February 2021 also shows a hike of 8% in home sales. MMR: Total sales witnessed an increase of 37% from February 2020 to February 2021. However, month-wise comparison from January 2021 to February 2021 shows a decline of 4% in home sales. PUNE: Total sales witnessed the growth of 12% from February 2020 to February 2021. However, month-wise comparison from January 2021 to February 2021 shows downfall of 8% in home sales. BENGALURU: Total sales witnessed an increase of 13% from February 2020 to February 2021. On the other hand, while comparing the data month-wise from January 2021 to February 2021, total sales witnessed an increase of 5%. CHENNAI: Total sales witnessed an increase of 8% from February 2020 to February 2021. On the other hand, month-wise comparison from January 2021 to February 2021 shows the downfall of 10% in home sales. HYDERABAD: Total sales witnessed a decline of 8% from February 2020 to February 2021. On the other hand, month-wise comparison from January 2021 to February 2021 shows an increase of 10% in home sales. KOLKATA: Total sales witnessed an increase of 87% from February 2020 to February 2021. However, month-wise comparison from January 2021 to February 2021 shows decline of 25% in home sales. Luxury home sales in Delhi/NCR surged a record 54% in February 2021. Bengaluru, Chennai, Kolkata, MMR & Pune witnessed the rise in home sales by 13%, 8%, 7%, 37% & 12% respectively during the same period. Only Hyderabad witnessed 8% downfall of sales from 1455 units in February 2020 to 1337 units in February 2021, as the PropEquity report stated.   CITY INSIGHTS – JAN-MAR 2021 From the price perspective, in Jan-Mar 2021, the southern region witnessed the most price increments in Q1 2021 in both under-construction and ready-to-move segments. Prices in Chennai rose by 1.5% followed by Hyderabad and Bangalore at 1.3% and 1% respectively. In the west, the biggest market Mumbai saw prices increment by ~1% alongside a significant ~2% increment in Thane. In the north, the significant markets of Gurugram and NOIDA also improved by 0.7% and 1.2%, respectively, the industry reports indicate.  BENGALURU: Bengaluru saw residential supply increase of 6.9% in the first quarter of 2021. The majority of Bengaluru's new supply was concentrated in the city's eastern and southern outskirts. Both the Under-Construction (UC) and Ready-to-Move (RM) property segments saw positive price changes, but the UC segment saw greater gains in Q1 2021. The demand for mid-sized homes has propelled the share of 2 BHK configurations even as the share of 3 BHKs has come down by 5% of the overall pie over Q4 2020. Ready-to-move segment posted a marginal QoQ growth of 0.7% but still declined on a YoY basis at 3.3%. Due to revived confidence, the Under-construction (UC) properties witnessed an increase in prices by 1.3% QoQ CHENNAI: Both under-construction and ready-to-move-in segments witnessed a price growthof 1.7% and 1.2% QoQ, respectively. The upcoming infrastructural developments such as the construction of the Salem-Chennai Expressway, Chennai-Bengaluru Expressway, and the 20 km Maduravoyal-Chennai Port elevated corridor are expected to drive strong demand in the coming years. Chennai benefits from strong mid-segment demand, with 2 BHK configurations accounting for approximately half of the market’s supply and demand.  While Ready-to-move property prices saw a decline of 2.5% YoY, Q1 2021 numbers suggest scope for future growth with 1.2% QoQ growth. Price of Under-construction (UC) properties continued its upward trajectory, rising 1.7% QoQ in Q1 2021. HYDERABAD: The supply in Q1 2021 was up by 19.5% which was more than twice the supply growth in India. Lower home loan rates and unchanged repo rates have boosted property sale and the affordable property prices compared to other states also worked well for Hyderabad. 2 and 3BHK dominated the residential market as they accounted for more than 90% of the total demand and supply. The mid-sized 2BHK configuration witnessed 47% demand in Q1 2021, up from 32% in Q4 2020. Ready-to-move segment posted 1.6% YoY decline despite positive movements in the last 9 month. Under-construction (UC) performed better with price increment at both QoQ and YoY levels at 1.8% and 2.8%, respectively. MUMBAI: Mumbai witnessed a supply boost in the form of new housing units, resulting in a 10% QoQ increase in overall listings in Q1 2021. However, in line with the national trend, the euphoria around the festive season has subsided, and the demand softened due to lingering economic uncertainty, resulting in a contraction in demand by ~20% QoQ in Q1 2021. After witnessing a continuous decline in the share of 1BHKs searched from 45% in Q4 2019 to 29% in Q4 2020, it was seen rising by 5% to 34% in Q1 2021. Prices of Ready-to-move (RM) properties remained flat at both QoQ and YoY QoQ levels. Under-construction (UC) segment witnessed a marginal QoQ growth. NAVI MUMBAI: The real estate market in Navi Mumbai was characterized by a ~12% QoQ growth in the supply of houses amid somewhat subdued demand in Q1 2021. For the first time since Q4 2019, Navi Mumbai witnessed the share of 1 BHKs rising significantly to 40% of the total demand in Q1 2021 from 25% in Q4 2020. Consequently, the share of 2 BHKs was seen declining to 44% in Q1 2021 from 53% in Q2 2020. Ready-to-move (RM) segment remained flat QoQ, but posted 1.5% growth YoY. Under-construction (UC) segment gained marginally YoY despite a QoQ decline of 0.7%. THANE: Thane fared better compared to its peers in the Mumbai Metropolitan Region (MMR), with prices risen by ~2% QoQ amid a mild contraction in consumer demand and enhanced supply of housing units. The share of 1 BHKs in Thane made up 40% of the total demand in Q1 2021, up from 32% in Q4 2020. The share of smaller as well as mid-sized units including 1 BHK and 2 BHK in Q1 2021 remained constant at 83% of the total demand, as in Q4 2020. The supply of such units was also seen to be in line with the demand at 84%. Ready-to-move (RM) segment gained marginally at the YoY as well as QoQ levels. Under-construction (UC) segment posted a decent 3.1% QoQ price growth. PUNE: The supply of homes in Pune grew 14% QoQ in Q1 2021, as compared to the national supply growing at ~8% in the same period. 2020, 1 BHK units saw a 5% QoQ growth in demand as well as supply in Q1 2021. the demand share of mid-sized and bigger homes including 2 and 3BHKs declined from 81% in Q4 2020 to 76% in Q1 2021. However, these configurations still make up the majority of demand as well as supply. Ready-to-move (RM) segment grew by ~1% QoQ, which remained flat in Q4 2020. Under-construction (UC) segment prices surpassed pre-COVID levels posting 1% growth in Q1 2021. AHMEDABAD: Ahmedabad’s demand for residential properties in Q1 2021 gathered pace, moving up by nearly 7%, while supply also grew by nearly 3% indicating an improvement in new launches, especially around the peripheral areas. The north and western zone of the city continued to get more prominence amongst the consumers and developers, especially the growth corridors of SG Highway and Sardar Patel Ring Road. The demand for 1 BHKs rose to 11% in Q1 2021 from 6% in Q4 2020, while its supply also doubled to 6% in Q1 2021 from 3% in Q4 2020. In Q1 2021, ready-to-move (RM) properties appreciated by nearly 1% which was the fourth consecutive rise starting Q2 2020. Even during the pandemic phase, the under-construction (UC) properties registered a 2.3% YoY price growth on the back of strong fundamentals. DELHI: Demand in Delhi is increasingly concentrated in the well-planned peripheral areas all around the city. Delhi continued its downward trajectory falling 18.5% on QoQ basis in Q1 2021, after a downward dip of 12.5% in Q4 2020. This pared the gains in demand made in Q3 2020 when demand climbed up sharply by 36%. The overall drop in volumes and price can also be attributed to the huge competition Delhi faces from the affordable luxury segment in various suburbs like NOIDA, Gurgaon and Greater NOIDA. The share of affordable 2BHKS grew from 32% in Q4 2020 to 35% in Q1 2021. Additionally, the share of 1BHKs more than doubled from 4% in Q4 2020 to 9% in Q1 2021. Ready-to-move segment posted a 0.7% QoQ rise in Q1 2021 after falling consecutively for previous 5 quarter. Under-construction (UC) performed better in Q1 2021, posting positive and significant price increment at 4.4% QoQ. GURUGRAM: At the onset of 2021, the Gurugram realty market witnessed movement in both the commercial and residential segments, with developers announcing new supply in various regions of the city. Additionally, emerging trends among buyers show that people are willing to pay a premium for properties if provided with an integrated township having an abundance of amenities within the society. The Gurugram residential market continued to be driven by the mid-segment. Ready-to-move segment witnessed a 1% increase in prices on QoQ basis. Under-construction property prices showed a marginal increase of 0.3% QoQ but remained stagnant YoY. NOIDA: A fall in the demand share of the highly-sought-after 3BHKs from 56% in Q4 2020 to 50% in Q1 2021, and an increased lookout in lower price buckets (compared to Q4 2020) reflected plateauing of COVID-19 related unique trends in the NOIDA and Greater NOIDA markets. In contrast to the pan-India trend of rationalizing demand, the demand in the region incremented marginally. The demand for higher configurations seems to have peaked during Q4 2020, and witnessed a fall from 56% of total share during Q4 2020 to 50% in Q1 2021. 2BHK configuration bounced back, with the share of demand having jumped from 31% in Q4 2020 to 35% in Q1 2021. Ready-to-move prices in Greater NOIDA posted a 2% QoQ decline in Q1 2021 while increasing by 0.7% in NOIDA. Under-construction projects performed better in Q1 2021, posting QoQ price increment of 3.2% and 1.6%, respectively, for Greater NOIDA and NOIDA. KOLKATA: The supply figures, improved by a meager 1% as developers refrained from launching new projects due to prevailing liquidity pressures, and remained focused on completing existing projects to minimise the unsold stock. The overall average price for residential properties increased by 1.7% in Q1 2021, on top of a 0.7% growth in Q4 2020. While the demand for 1 BHK units increased from 6% in Q4 2020 to 12% in Q1 2021, the corresponding supply also rose from 2% to 5% during this period. Ready-to-move (RM) segment grew by ~1% QoQ, up from the discounted levels offered during the festive season in Q4 2020. Under-construction (UC) properties posted a price growth of 2.3% QoQ, and 4.6% YoY.   RESIDENTIAL MARKET DYNAMICS In housing segment, developers expect housing sales in the top eight cities in 2021 to bounce back to the 2019 levels if the lockdown due to the second Covid wave are minimal. According to Knight Frank India, sales of residential properties across eight major cities grew 44% in the January-March 2021 to nearly 72,000 units. Sales across the top eight cities -- Delhi-NCR, Mumbai Metropolitan Region (MMR), Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad -- rebounded in the second quarter of FY2021, indicating some green shoots of normalisation. With some further recovery expected in H2, ICRA has revised its earlier estimate of sales volume decline in FY2021 to 35-40%. ICRA said the uptick in absorption levels during the second quarter of FY2021 has been driven by affordable and mid/upper-mid segments. Housing sales may fall by 35-40% in the ongoing fiscal year even as demand improved during the September quarter, rating agency ICRA said while revising its forecast. It had earlier estimated a 45% decline in sales volumes in FY2021. The persisting liquidity crunch of the sector has worsened and various restrictions imposed by the Government to curb the pandemic has led to a temporary halt in ongoing real estate projects. However, as per CARE Ratings the companies opting for “Work From Home” or a blended work from home situation has led to homebuyers buying their own space or a bigger space. Demand for townships with a range of amenities has accelerated after COVID-19 emphasised the importance of having amenities within your project.  The partial shutdowns with permission to continue construction activity in the states is expected to keep the sector going though, the worry remains of restricted movement of people leading to lesser footfall and reduced site visits going forward.   COMMERCIAL REALTY TRENDS For commercial units, the demand would continue to remain subdued till financial year 2022 with emerging work from home and shared workspace culture. Office rentals will be impacted and in the case of malls that had witnessed very limited footfalls last year, with the resurgence of the virus, the outlook remains negative especially with stringent lockdowns been announced by various states. At the same time, the leasing momentum in some of the larger markets have remained promising in the first quarter of 2021. Pre-commitments in new completions played a significant role in driving net absorption in 2021. In the first quarter, 31% of the new completions during the quarter was already pre-committed. Maximum pre-commitment levels were observed in the southern markets of Bengaluru (51% of the new completions) and Hyderabad (45% of the new completions).  Office rents in Q1 2021 remained stable across the major office markets in India. With vacancy levels still below 15% and limited upcoming Grade A supply across key markets in the next few years, the office market in India continues to be tilted towards landlords. Landlords continue to be accommodative to the demands of occupiers and are providing flexibility via increased rent-free periods, reduced rental escalation and fully furnished deals to occupiers to close deals. For commercial units, the demand would continue to remain subdued during FY22 with emerging work from home and shared workspace culture.

1. Office rentals is to be impacted with the emergence of “Blended Work from Home” culture.
2. Malls footfalls seem to be performing well only during the festive season, which normally starts Q3 onwards.

Despite the emergence of concepts of work from home and work near home, occupiers with healthy financial profile in grade A office spaces have continued to meet their existing leases and commitments on time which will not impact leasing agreements, as per CARE Ratings.  The leasing momentum in the upcoming quarters will mainly depend on the time taken to contain the second wave of COVID-19 cases. It is important that landlords continue to be receptive to the demands of tenants and offer flexible options, in terms of space as well as value. The resurgence of virus is forcing companies to hold real estate decisions which is reflected by the rising Grade-A office space vacancy levels from 12.8% in March 2020 to 14.9% in March 2021. However, the increased attendance in offices across major markets before the second wave bears testimony to the confidence of corporates to get back to work from the office and bodes well for the CRE market.