As businesses and economic activities resume, there have been positive market developments in the real estate sector in Mumbai "The markets are moved by animal spirits, and not reason." - John Maynard Keynes If the noted economist had been alive, he would've definitely noted how a coastal city in India is defying this assumption. While the real estate sector in many regions of the world is still reeling with the market slowdown caused by the coronavirus pandemic, Mumbai—one of the most expensive cities in the world—has recorded significant growth in housing. Myriad factors in the market, both generic and specific, have made this is a propitious time for anyone wanting to invest in the real estate sector.
The Bounce Back
As businesses and economic activities resume, there have been positive market developments in the last few months. The momentum has been particularly strong in Mumbai being one of the most preferred locations in India. In Mumbai, the appetite for real estate is almost unquenchable. The city’s real estate market has bounced back from the brief slump with a roar owing to sharp sales jumps and affordability showing an improvement by 32% since 2010.
As per a survey conducted by ANAROCK Property Consultants and Confederation of Indian Industry (CII), almost 62% of Indians believe that the post coronavirus pandemic period is the right one to invest in real estate. The coronavirus pandemic and its ramifications have convinced them that having one’s own roof is imperative.
With new cultures like work-from-home and online education permeating almost every household triggering the need for more space, the demand for homes is rising at breakneck speed. It is forecasted that the industry is set to deliver 140 million units in the next 10 years, growing at 19% CAGR.
With the suspension of all travel restrictions and the economy gradually inching towards its earlier path, the demand for real estate is robust. Registrations have witnessed an almost three-fold increase in a span of 60 days, with sales growing from 7,635 in the third quarter of 2020 to 22,407 in the last quarter, marking a whopping growth of 147%. Adding to this growing demand was the structural fillip provided by the government. The nudge has come in the form of affordable bank loans, stamp duty relaxation and tax benefits pertaining to real estate. The mixing of this troika, with the booming real estate demand in Mumbai, has brewed the cocktail of exponential growth.
The Reserve Bank of India has been making accommodative policy changes since the beginning of the ongoing health crisis. It introduced adequate liquidity into the market, and also provided the soft cushion of a loan moratorium. Notable among one of the steps taken by the RBI is the slashing down of bank loan rates. Presently, loans are disbursed on a historically low 7% rate which was achieved via a 120 basis point cut over the fiscal year.
With fixed income returns at all-time low and extremely low mortgage rates, real estate has quickly become a viable alternative long-term investment option for those looking to be on the safe side of the market. As such, this is the right time to turn the dream of living in South Mumbai into reality.
Consumer preferences have drastically changed with a noticeable shift towards the preference of Tier I builders. Buyers are no longer hesitant to pay a premium for property units constructed by some of the leading names in the business, as they don't want to compromise on quality and delivery time; things which the real estate market in India is infamous for.
Aiding this shift is the exit of Tier II builders, who have been cash-strapped since the IL&FS fiasco; losing consumer trust in the process. Housing finance providers are paying the utmost attention to moral hazards and avoiding adverse selection.
The Mumbai Metropolitan Region (MMR) is by far one of the biggest real estate markets in the county. Its share of real estate absorption is almost 32%, which is tantamount to more than 50% of absorption when considered in terms of value.
As per a draft document by Macrotech Developers Limited filed with SEBI, the top seven markets in India witnessed a cumulative sales of ₹ 11,881 billion of organised residential developments in the past six years. MMR continued to dominate with the highest contribution of approximately 32% to 46% in the overall sales value in the last six years. Lodha Group is the largest real estate developer in India by residential sales value for the financial years 2014 to 2020. Even amid a pandemic in 2020, Lodha group accounted for the highest sales value, collections and revenue from operations among real estate developers in India. This is further proof that legacy builders like Lodha are here to stay and consistently delivering exclusive residences of exceptional quality.
Demand for real estate in Mumbai has already outpaced the supply of houses in the city for the past 3 years. Now with the virus and the favourable policy changes, the market is set to be inundated with buyers, and as a result of this shortage of houses, prices are set to shoot up.
Stamp Duty + Tax benefits + Low interest rates
Supplementing low-interest rates was the Maharashtra government’s decision to reduce the stamp duty on registered property. The stamp duty is a revenue source for replenishing the state coffers, but here, the Maharashtra government played the field strategically, opting for growth via volume. The stamp duty cuts (300 basis points cut till December 31, 2020, and 200 basis points cut till March, 31, 2021) catalysed the revival of the residential market and assisted in taking fence-sitters over the edge and resulted in huge growth. On International Women's Day this year, the Maharashtra government announced 1% concession on stamp duty over the prevailing rates; further boosting sales from women homebuyers.
The demand for homes is inherent, the sentiment has grown positively and COVID has made the fence-sitter move towards decision making.
While the market in Mumbai is currently riding the high wave, the recently delivered budget plans to further boost the real estate demand in the country by providing tax benefits. The Finance Ministry has permitted a deduction of up to 1.5 lakhs for home loans pertinent to affordable housing till March 31, 2022. Moreover, tax exemptions have rendered Real Estate Investment Trusts and Infrastructure Investment Trusts more desirable to investors.This is a partnered post.