Even as the number of residential units sold across the country dipped by more than half in 2020 compared to 2019, the fourth quarter of 2020 witnessed an acceleration of 51% compared to the third quarter, a new report by JLL has said.
As many as 1,43,923 units were sold across the top seven cities in 2019 and 74,451 units were sold in 2020 which is a dip of around 52 percent year-on-year, the report said.
As for the fourth quarter, Mumbai, the country’s largest contributor to sales for this quarter accounted for 23% of the overall sales, while the Delhi NCR market accounted for 20%. Pune saw the maximum increase in sales activity as compared to the third quarter at 147% with 3,323 units sold in all, a new report by JLL has said.
Mumbai includes Mumbai city, Mumbai suburbs, Thane city, and Navi Mumbai.
“GDP in the July-September quarter of 2020 showed higher than expected recovery. During the same quarter, the housing market showed some initial signs of recovery as well, with sales increasing by 34% on a sequential basis. In the backdrop of issues like job security and fall in income levels, this uptick in sales was a significant achievement. The fourth quarter has witnessed a 51% improvement in residential sales and not just that, the improvement has been evenly spread among all seven cities,” said Ramesh Nair, CEO and Country Head, India, JLL.
As the sector shows signs of recovery, prominent developers are expected to be at an advantage and capture a greater share of the market. Given that the affordable and mid-segments (sub-Rs 1 crore) continue to witness maximum sales traction, select developers are also reviewing their projects to make them more aligned to buyers, both in terms of product and price.
"Additionally, buyers are unwilling to take any risks and are showing a higher preference for completed projects, or projects where significant construction is underway,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
New launches witness increased momentum in the fourth quarter
The fourth quarter of 2020 witnessed 26,785 new residential unit launches, more than twice the new launches witnessed in Q3 2020. New launches in Q4 2020 increased in all markets under review, when compared to Q3 2020.
Bengaluru and Delhi NCR saw a substantial increase in launches during the quarter. Hyderabad dominated new launches accounting for nearly 40% of the overall launches during the quarter and Bengaluru followed with over 16%. This being said, it is important to note that new launches are still restricted when compared to the pre-COVID levels. Developers across markets focused on the completion of under-construction projects and clearing existing inventory.
On an annual basis, overall launches across the top seven cities dipped by 31% to about 95,000 units in 2020 as compared to about 137,000 units in 2019.
Development focus on mid and affordable segments continued in Q4 2020 with more than 80% of the new launches in the sub Rs 1 crore category. Moving ahead, the focus on this price segment is expected to continue with developers trying to reap the benefits of strong pent-up demand in this segments. Most of the new launches in the southern markets of Bengaluru, Chennai, and Hyderabad were in the sub Rs 1 crore category.
Unsold inventory increases marginally
As new launches outpaced sales, unsold inventory at various stages of construction across the seven markets under review increased marginally from 4,57,427 units to 4,62,380 units.
Mumbai and Delhi NCR together account for more than 50% of the unsold stock. However, an assessment of years to sell reveals that the expected time to liquidate this stock has marginally increased from four years in Q3 2020 to 4.2 years in Q4 2020. If sales continue its recovery path coupled with limited new supply for the next few quarters, the market is only expected to gain attractive deals for homebuyers while delivering stable returns to developers.
A buyer’s market with prices facing downward pressure
Residential prices in the majority of India’s residential markets have remained more or less stagnant in the past few years. Developers are operating with very low margins and the chances of further reduction in prices are very remote. In Q4 2020, prices remained largely at levels similar to that of the previous quarter, across all seven markets under review.
This being said, it is important to point out that few developers in select markets are providing moderate price discounts to kickstart sales thereby facilitating cash flows to tide over the crisis in the short term. Moreover, developers are offering attractive incentives including payment schemes such as no EMIs for a year, no stamp duty, etc. to attract homebuyers who pressed ‘pause’ in the last few months
This has led to a reduction in effective prices. The rationalization combined with reduced home loan rates has further improved affordability in the residential market. As developers continue to focus on recovering the volumes lost amidst the pandemic and gain a foothold in their respective markets, prices are expected to be largely range-bound across most of the markets.
Expectation 2021: What more needs to be done?
The government made necessary and timely interventions through liquidity infusion, fiscal support, and reform-driven investments in the initial leg of relief measures. Further, the Central Bank and the Central Government rolled out other critical measures including loan moratorium, relaxation of NPA classification norms, one-time restructuring of corporate and personal loans (including home loans).
These measures and concessions have definitely helped in enhancing consumer sentiment, thus boosting consumption, resulting in increased traction in the real estate sector. While we have seen a continuance of recovery in the fourth quarter which started in Q3 2020, the actual market transaction volumes continue to be lower compared to pre-Covid levels.