Residential sales in key markets across the country made a smart recovery in Q4 2020, bringing a much-needed cheer to the developer community. The relative increase in sales by almost 42% QoQ and contributing to 28% of annual sales for 2020 indicate that the suppressed demand moved into an active space given a slew of market measures from both the development community and the government.
Reductions in stamp duty and guideline rates across states like Maharashtra, Karnataka, Tamil Nadu, Delhi-NCR region have helped key markets gain traction. This, coupled with more pragmatic pricing from developers and the monetary policy support from RBI impacting home loans, has further resulted in many fence-sitters take the plunge into buying residential units. The support-based demand growth in Q4 2020 spilled over into January 2021, though the momentum has marginally slowed month on month while it is expected to sustain in Q1 2021.
The continued support extended from state and the central government in terms of statutory fees is likely to enthuse the demand in residential sales; the key is for the developers to maintain prices and, most importantly, showcase construction progress.
The analysis of residential sales undertaken by Real Insights for 2020 indicated that ready-to-move-in or nearly completed project sales increased 3.0% relative to total sales, while demand for under-construction projects saw a decline as first-time buyers are cautious. They do not want to be burdened by both rent and EMIs.
This increase in demand saw inventory overhang reduced across India from 4.3 years to 3.9 years, aided by reduced supply which was only 57% of the average annual supply observed since 2016. However, the new supply on a QoQ basis saw recovery from Q2 2020, and Q4 2020 saw higher supply on Y-o-Y comparison across India except for Mumbai and Bengaluru.
The demand segmentation analysis exhibited that affordable housing and mid-segment units showed the highest growth while premium and luxury segments remained stagnant. This reflects in increased launches in affordable housing and mid-segment housing projects, while benefits from continued sops for affordable housing projects in Budget 2021 are likely to add to the growth of demand in this segment across India.
Moreover, the interest to invest capital in affordable projects is higher among the institutions and housing finance companies that have led to an explosion of affordable housing projects. In contrast, more city-centric projects are positioned as mid-segment/premium housing. This is expected to continue through 2021 with fewer luxury projects developed though sales have shown an uptick in this segment.
Peripheral parts of the large urban agglomerations will see continued demand due to affordable housing projects, followed by micro-markets with unit prices ranging from Rs 40 lakh to Rs 85 lakh in key markets, except for Mumbai where the demand will equally increase and sustain for units ranging from Rs 1.20 to Rs 2.5 crore.
Cities like Pune, Ahmedabad, Noida, and Mumbai peripheral region have seen increased traction in affordable projects while demand in Hyderabad, Bengaluru, and Thane concentrated on mid-segment housing.
Interestingly, nearly 60% of current demand is based on conducive monetary and fiscal policies, which could be impacted based on the time and support extended to the markets and individuals. The demand in 2021 will be evaluated closely to evaluate the shift from support-based to need-based demand that is more sustainable and required for the sector's long-term recovery.
The breakdown of housing preferences shows 2BHK units are preferred, followed by 1 BHK in most markets. In mid-segment residential units, buyers exhibit a choice for larger carpet areas, especially in cities with high IT/ITeS dependence where the work from home policy is either extended or option provided to adopt it permanently.
Further, demand for projects with ready units and integrated facilities, and larger community spaces will continue to grow. The characteristics of existing demand are financially rigid. Most buyers have set budgets, negotiating hard for deals that could fit pre-determined budgets and require possession within a specific period.
The fallout is increasing demand in ready-to-move-in apartments that are priced right or projects in which the developer is willing to discount pricing. This is a result of a cautious outlook to job security and larger macro-economic factors, where buyers are seeking to de-risk long-term investments.
Given the above observations, it is expected that the residential sector is on the road to recovery in 2021 but could well spill over into 2022 to come back to pre-COVID levels. The sector growth and sustenance of demand will depend on the pricing trends, support from monetary policy making, and, importantly, developers' readiness to invest into completing the existing projects and ensuring timely delivery.