Residential real estate segment saw sharp recovery in Q2: ICRA

The pandemic reportedly triggered one of the worst demand crashes that the Indian residential real estate industry witnessed in recorded history.
Bengaluru skyline
Bengaluru skyline
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Ratings agency ICRA on Thursday said the residential real estate segment has witnessed a sharp recovery in Q2FY2021, post a severe decline in Q1FY2021. According to the agency, the Covid-19 pandemic had triggered one of the worst demand crashes that the Indian residential real estate industry witnessed in recorded history.

Overall, the housing sales volume witnessed a YoY decline of 50% in H1 FY2021 across the top eight cities of the country. "However, sales volume bounced back considerably with a QoQ growth of 60 per cent, recorded across property markets in the second quarter of the current fiscal," an ICRA note said.

As per the note, the recent improvement was primarily driven by a gradual unlocking of the economy, pent-up demand, and improved affordability on the back of reduced home loan rates and attractive payment schemes or discounts.

"An increasing focus on home ownership, both from domicile residents as well as the NRIs, has been aiding sales. Reverse migration has further supported an increase in housing demand in tier II or III cities," said Shubham Jain, Senior Vice President and Group Head at ICRA.

"Notably, increasing digitisation has played a key role in enabling sales in the current environment, with extensive use of digital marketing and digital engagement tools by the developers aiding online home sales and transaction payments. The crisis has thus pushed the sector towards widespread technology integration."

The agency noted that buyers preferences for rightly priced inventory at advanced stages of construction continued to be in place, although larger format units seemed to be finding increasing favour, possibly due to the requirement for dedicated work and study areas.

"While quarterly average sales for under-construction units registered a decline of 78 per cent during H1 FY2021, a significantly lower decline of 29 per cent was noted for advanced stage or completed projects," the agency's note said.

"With the higher pace of recovery for advanced stage or completed inventory, this segment contributed to over half the pan-India sales generated in Q2 FY2021."

This preference, combined with the significantly higher supply of under-construction units vs advanced stage units, is expected to pose challenges for developers having a high dependence on sales from under-construction inventory, it cited.

"However, demand for under-construction units will remain supported to some extent by buyers preferring staggered payment, parallel plans of liquidating other holdings, etc."

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