With the government’s incentives to people to encourage home ownership including low interest rates and extension of interest subsidy for affordable housing, housing loan business which is amongst the safer segment of bank’s lending, is set to bounce back after an 11-year low. After the turbulent phase, both RERA and GST have stabilised and the stakeholders are now able to leverage the benefit of a healthy ecosystem in the residential sector which was not the case earlier.
Strong government support at the national level is reinforcing the positive stance on residential sector in India. This is evident from the sizeable allocation of Rs 50,000 crore to the Ministry of Housing and Urban Development as well as formulation of Rs 25,000 crore SWAMIH Fund to provide last mile funding for completing the stalled housing projects.
Between 2011 and 2020, home affordability increased in all cities. The impact of decreased salaries on affordability was more than offset by a dramatic reduction in the cost of finance for home buyers and corporates Even today despite recent repo rate hike of 90 bps in two tranches by the RBI, lending rates are still affordable. Real Estate developers have also been making attractive offers and discounts to make homes affordable for customers in order to attract the target audience and retain the clientele. Several new projects have begun, demonstrating that demand is growing in these trying times.
According to a recent report by ICICI Securities, top listed developers’ market share is expected to increase from 21% in FY 2021 to 25% in FY2024. The pricing disparity should increase demand for under-construction real estate. The industry recognized the future demand, which resulted in a 50 percent increase in new launches y-o-y in major real estate markets.
We learned in 2021 that affordability was a big consideration for most of the customers. Over half of the housing demand in key residential markets have been for flats priced between Rs 45 lakh and Rs 75 lakh,with the remaining 25% for residences priced between Rs 45 lakh and Rs 75 lakh. So, despite rising input costs, 2022 will be the year for developers to optimize costs by implementing technology in most parts of real estate construction and business to ensure that owning a home is affordable. NRI investments in the Indian residential market are predicted to expand in the post-COVID period by 2022, owing to receding pandemic, superior foreign exchange conversion rates, and improved transparency due to tougher regulatory procedures.
Talking of residential trends, product design will take precedence over apartment size in the year 2022. An extra room has become a consumer requirement; what is outside the four walls of a home (open spaces and amenities) will become just as significant as what is inside the house. Integrated townships, walk-to-work, shops, hotels, hospitals, schools, and parks are becoming increasingly popular among homebuyers. Further, the demand for ready-to-move-in properties has risen in practically all real estate segments in the year, including affordable, mid-market and luxury housing. Home buyers have been preferring completed flats to avoid the hazards connected with under-construction houses. The share of ready-to-move-in (RTMI) homes in total property sales in the primary market grew to 21% in the pandemic hit 2020, up from 18% in the previous year.
With technology making strides, what lies ahead is hyper-connectivity. McKinsey cites onsite execution, back-office integration, and end to end digital collaboration as the 3 key clusters where hyperconnectivity has to play a crucial role. Today, with adequate technology adoption at the enterprise level, there have been several case studies where the savings on time and cost, increased productivity and reduced expensive rework. Today, with a host of integrated technologies at play, your mobile/tab can enable you to share real time progress on the construction site, its deviation from the drawing and measure the impact of your decisions. Properly executed technology reduces human intervention, similar to the Japanese ‘Poke-Yoke’ concept locks the occurrence of errors and spots faults early for in-time corrective measures. EPC or construction companies of today that aspire to be competitive in the marketplace need to strive not only for technological adoption but also regular updation for everything from real time monitoring of the work site to making mission-critical decisions. Technology today is not to be considered as a tool to simplify siloed operations but an assessment on how it impacts the business ecosystem, is critical.
Post pandemic, the market has witnessed increase in demand of homes with better product design, with more usable area and one extra room for work, yoga and recreational activity. If we consider top 8 cities in India, the market has witnessed a 75% YOY in H1 2021. On the supply side,35% of the projects launched in Q2 were in the price range of 40-75 lakhs. Due to the high demand and sale of RTMI inventory, its supply has now shrunken which has accelerated the rate of new launches. Hyderabad seems to have topped the chart of new launches taking 40% of the pie. The credit crunch faced by the residential real estate sector had high impact in Noida and MMR region and buyers have become more risk averse. The established developers will find it easier to come out of this crisis. Housing prices have seen marginal increase across major cities of India. We might expect a further price correction in 2022.
The blog is based on interaction with Torbit Realty Editor, Vinod Behl
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