By Dhruv Agarwala
Group CEO, Housing.com
India is now gradually learning to live with the coronavirus. Offices, malls and stores all have opened across the country and life is slowly getting back to business as usual even as the pandemic continues to spread across the country and showing little signs of abating. Little doubt, the pandemic has adversely impacted various economic activities across the globe.
The case of the real estate sector too has been similar; sales have suffered in the last couple of months. But as they say like good times, bad times don’t last forever and there are indications that the real estate sector may re-emerge sooner rather than later. There are several factors, which may act as the saviour for the sector as well as for the entire economy.
Affordable housing along with ready-to-move-in properties has been the saviour for the sector, which has been passing through a challenging phase. With the India Meteorological Department predicting a normal monsoon across the country, this story may continue. A normal monsoon bodes well for the agriculture sector of the country and as a substantial chunk of India’s population is still dependent on agriculture, this is bound to help the economy on its recovery path.
A good harvest is likely to benefit the real estate sector, particularly the affordable housing segment. According to a recent PropTiger.com report, around 50 per cent of unsold housing stocks in the nine major residential markets in India are in the affordable segment. At the end of 2019, India’s top nine cities had a total unsold stock consisting of 7.75 lakh units of which close to 3.90 lakh units were affordable homes.
With prices remaining stable, the uptick in the agriculture sector is likely to result in higher demand for affordable homes. The recent reform measures announced by the Government in the agriculture sector, including providing freedom to farmers to sell their produce wherever they wish along with the recent hike in minimum support prices, are likely to boost the confidence of the farm sector further. It will immensely help in reviving demand particularly in tier II and III cities.
Also, helping the cause of the sector are the low interest rates, which are nearly at a 15-year low. As real estate is an interest sensitive sector, the falling interest rate regime, which is currently around 7-7.5 per cent for home loans is likely to benefit the sector by spurring higher demand for properties. This will be particularly helpful for the ‘Ready to move-in’ segment which accounts for a large chunk of overall demand. Sample this: owing mainly to the slowdown in the economy, housing sales fell 11 per cent during the last fiscal year across nine major cities of the country, but the demand for ready-to-move-in residential units rose at the expense of under-construction flats.
According to data of our Group firm PropTiger.com, the share of ready-to-move-in inventory as a percentage of total sales rose to 20 per cent during the 2019-20 financial year as against 15 per cent in the previous fiscal. The sale of completed units rose to 64,386 units during 2019-20 as against 53,908 units in 2018-19. Amid the falling interest rate regime and uncertainty around builder financial strength due to the pandemic, the share of ready to move-in properties may increase further.
Lastly, as real estate has perhaps been the only asset class that has not seen value erosion or volatility in this market as witnessed by equities, the real sector sector has regained the charm of being the best investment option for a large segment of people.
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