GUDI PADWA MAY NOT BRING ANY CHEER FOR THE REAL ESTATE SECTOR

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GUDI PADWA MAY NOT BRING ANY CHEER FOR THE REAL ESTATE SECTOR by Mr Girish Shah, Executive Director – Residential Sales Knight Frank.

 

Traditionally, the day of Gudi Padwa is considered to be an auspicious one for large value purchases as it marks the beginning of a new year in Maharashtra. To celebrate this occasion, people often invest in traditional assets like gold or buy a new car or house, a move to signify a prosperous start. As a result of these sentiments, many real estate development companies also announce new projects or make attractive offers to buyers. However, with continued volatility in the stock markets, weak economic macro indicators and concerns over the spread of coronavirus, new launches in the residential real estate sector are likely to remain muted.

As the government prepares to take precautions such as a ban on large gatherings as well as social distancing to curb the spread of the COVID-19 outbreak, we anticipate a drop in footfalls and customer visits at developing projects – a crucial factor that translates consumer demand into sales.

The real estate sector has been grappling with challenges of credit and liquidity crunch for some time now especially as demand slows down. Traditional periods of sales have failed to garner end-user demand for the last few years leading to a stagnation of the segment. The government has been pushing the real estate agenda but the same has been mostly towards ‘affordable housing’ with sops limited to that segment. This has left a large majority of mid and high-end projects in the lurch.

India Residential Market

Parameter 2019 Change (YoY)
Launches (housing units) 2,23,325 23%
Sales (housing units) 2,45,861 1%
Unsold inventory (housing units) 4,45,836 -5%
Quarters to sell 8.9
Age of unsold inventory (in quarters) 15.9

Source: Knight Frank Research

Knight Frank estimated a rise of 23% in residential launches while sales showed very moderate growth of 1% in 2019 over the previous year. While these numbers may not look challenging, the primary aspect to bear in mind is that the majority of the launches, as well as sales, have been in the sub 50 lakhs category.

In the key markets of Mumbai and Pune, the picture has been particularly grim. In 2019, new launches rose in both cities while sales velocity remained very low. Launches in Mumbai rose by 7% while sales declined by 5% in 2019 over the previous year. Even while the city saw a decline in average prices by 2% over the previous year in 2019, demand remained tepid. The story was not very different in Pune either where new launches rose higher by 37% even as demand slowed by 2% in 2019 over 2018. Unsold inventory in Pune almost touched 40,000 units in 2019. While Mumbai’s unsold inventory was estimated at approximately 145,300 units.

Residential Market in 2019 (YoY Change)

City Launches (housing units) Sales (housing units) Unsold inventory (housing units)
Mumbai Metropolitan Region (MMR) 7% -5% 15%
Pune 37% -2% 43%

 

The residential sector is looking for triggers and impetus that would propel demand. However, the current uncertainty over the longevity of COVID-19 outbreak looms large, and it will certainly affect the health of the sector. Most developers will hold back their planned new launches while demand continues to remain subdued.

End users can consider this window of opportunity for entering the real estate market as factors are favourable. Real estate prices have corrected by nearly 14% since 2016, home loan rates have reduced and with improved regulatory norms and RERA, the interest of the end-users is protected. While the upcoming festival season is likely to remain a lackluster affair, fence-sitters can look at making their purchases to ensure that they can get the best value for their real estate.