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Green shoots of recovery, affordability at its highest

Green shoots of recovery, affordability at its highest, the vie

The residential segment has been showing green shoots of recovery as housing sales grew by 73% on a q-o-q basis across India’s top seven cities in Q4-2020, according to CBRE South Asia, real estate consulting firm. Measured policies announced by the central and state governments, and the RBI, coupled with the incentives provided by developers, led to this scenario, CBRE said in its recent report, ‘Residential Real Estate in India – Challenges And Future-Proofing Strategies For Developers’.

The recovery continued in H1 2021, as sales recorded over 75% growth on a y-o-y basis. Pune led sales activity with an approximately 26% share, followed by Mumbai (19%). It was closely followed by Hyderabad and Delhi-NCR with 18% and 17% shares respectively.

While the report captures the recovery of residential real estate, it also highlights the factors that led to the growth of affordable and mid-housing sales in India, over the last decade.

Affordability at its highest in over a decade

While property prices have grown at a CAGR of 1-6% across high-end segment and around 2–7% across mid-segment since 2010, the per capita GDP grew at a CAGR of 4.0% between 2010 and 2020.

Further, the growth in GDP per capita for the top seven cities was above the national average, with Bengaluru reporting the highest CAGR (6.6%). Hence, the income growth overtook the average rise in the price of properties, further contributing to housing affordability.

Moreover, the RBI gradually brought down the repo rate from 6.25% in February 2019 to 4.0% in May 2020, which has led to interest rates on home loans come down to 6.7-6.9%

Government’s initiatives to boost affordable housing

Affordable housing has consistently been on the Central government’s agenda ever since the policy on ‘Housing for All by 2022’ was announced in 2014. The reduction in GST on under-construction projects from 8% to 1% in 2019, coupled with various incentives announced in the Budget 2021-22, has helped affordable housing become the major contributor to the sector’s growth.

Commenting on the release of this report, Anshuman Magazine, Chairman, India & South-East Asia, Middle East & Africa, CBRE, said, “The residential segment has played a major role in the real estate sector’s growth in India. The initiatives undertaken by the central and state governments have been crucial and commendable.With incentives such as the all-time-low interest rates on home loans, extension of moratorium period on loans, coupled with reduction in either circle rate or stamp duty across a number of States, residential has not only shown recovery but has become a great addition to asset portfolios.”

Gaurav Kumar, Managing Director & Co-Head, Capital Markets, India, CBRE, said “As work-from-home and e-schooling have become the new lifestyle, the need for owning a home has dawned upon people. This has induced a wave of change in the industry as developers got back to their drawing boards to design more accommodative homes to align with the demand.”

Although the residential sector is witnessing green shoots of recovery, developers are still navigating through issues such as limited availability of credit, tax and regulation complexities, construction delays due to labour shortage caused by reverse migration (though abated to a large extent), and higher input costs leading to rising construction costs. The report discusses these challenges and how developers can navigate through these constraints to future proof their portfolios. Some of the key factors that developers should consider are maintaining financial discipline, investing in technology to expedite construction timelines, and move in line with the emerging trends in the RE segment.

Future trends

To accommodate the trends of WFH and e-schooling, buyers could opt for larger homes

To accommodate home-offices and classrooms, developers might have to come up with flexible home designs

As the commute time is expected to reduce owing to hybrid and satellite office set-ups, cities’ peripheral locations are expected to witness a higher demand as they offer more accommodative homes at relatively lower prices

Demand for sustainable and smart home designs could increase as consumers become more conscious of energy costs

With health and safety of the labour force gaining more attention, developers are likely to safeguard the well-being of their labour pool by ensuring sanitisation and social distancing at construction sites

Way forward

Going forward, developers would have to foresee and plan for any future disruption to the workforce and project delivery. According to CBRE, below are some practices that could assist developers to emerge stronger and resilient post the pandemic:

Timely delivery to create brand loyalty and add-on services to build trust with customers

Accelerate adoption of modern technology and construction techniques

Embrace strong corporate governance and inculcate the ESG model

Maintain financial discipline

Diversify development portfolio; re-align portfolio with market dynamics and market cycles

Invest in upgrading labour force skill-sets.

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