Like other industries, the construction sector was also severely affected after the national shutdown was imposed in late March. The unavailability of workers (mostly migrants) along with the rising cost of materials were other blows. Projects have stalled, lead times have been delayed, and several buyers have postponed their decision to buy a property.
Sales fell nearly 30% in the first quarter of 2020, says Rajesh Gurumurthy, senior director, head of strategic advisory, Tamil Nadu and Sri Lanka, at Jones Lang LaSalle.
Market sentiment in the second quarter of 2020, according to the Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index, fell to a record low of 22. The sentiment score reached a low of 31 in the first quarter, but the impact of the crisis was becoming more evident in the second quarter, the sentiments slipped again.
According to Shishir Baijal, CMD, Knight Frank India, quoted in the report, some macroeconomic indicators showed marginal improvement. This, added to the upcoming Christmas season, has improved the feeling even though they still remain “in the pessimistic zone.” He says the few stimulus measures announced by the RBI and the government have provided breathing space, but there is a need for more demand stimulus measures, such as tax breaks for the purchase and rental of a car, home, ease of access to credit, etc.
After June, construction activities gradually resumed in many places. The RBI’s announcement of lower interest rates, reduced stamp duty and registration fees in many states, and the six-month moratorium on loans appear to have contributed marginally.
Many states already claim to have recorded more property sales compared to the March-June period, Gurumurthy says.
Signs of revival:
The first signs of a recovery in the residential market will emerge in the affordable and midsize segments of large cities, says Gurumurthy. “More than 50% of the potential buyers we surveyed are likely to buy their dream home in the next six months. The Hyderabad, Pune and Chennai markets provide indications of relatively healthy inventory management in terms of mean build time and YTS (years to sell). The first signs of recovery may appear first in the markets of southern Bengaluru and Chennai, ”he adds.
“Although there was an initial ambiguity among buyers, the Covid situation made many realize the importance of owning their own home,” says Eshwar N, Casagrand’s chief marketing officer. He adds that falling mortgage interest rates and some great deals are the reasons the real estate segment is seeing these signs of recovery.
With several states considering a reduction in stamp duty, this could work to the advantage of both builders and buyers. Maharashtra was the first to announce price cuts, and according to Prashant Thakur, director and research manager at Anarock Property Consultants, move-in homes are now the most attractive option for home buyers in MMR and Pune. “The combination of the GST exemption, reduced stamp duty, and lower interest rates on home loans (in nearly two decades) favors manufactured homes. When you factor in the ongoing incentives that developers offer, buyers who focus on manufactured homes have a clear advantage. “
In the under construction category, properties that need to be completed within the next 6-7 months are the next best option. While these are not GST-exempt, they are priced consistently 5-10% less than their move-in counterparts, Thakur adds, according to a recent report.
Developers have been forced to think beyond the repercussions and understand the changing needs of buyers, says T. Chitty Babu, president and CEO of Akshaya. The Chennai real estate market may see a turnaround due to the proposed expansion of manufacturing and commercial industries and activities in the state. “It will be important to understand the changing patterns of consumer behavior in the post-Covid era. Hygiene, safety, comfort and convenience will take center stage and their effect will rub off on developers, ”he says.
Centered in Chennai:
In Chennai, prices were unchanged between April and June this year, compared to the previous quarter. According to Insite, the quarterly report from real estate portal 99acres.com, the three-month period has seen increased interest from serious buyers (many of them opting for virtual tours) in projects that are nearing completion.
In terms of demand, more than 60% has been reported for houses priced below 40 lakh. Confirming the rise in the middle segment, Gurumurthy says there is a demand for ready-to-sell homes between ₹ 40 lakh and ₹ 60 lakh.
Localities with good social infrastructure and good connectivity in the northern and southern belts remain popular with tenants. Two-bedroom units remain a popular option, as do towns such as Sholinganallur, Thoraipakkam and Tambaram, which have a high inventory of properties below 50 lakh, according to Insite. Kelambakkam saw a sharp 9% increase in rents, year-on-year, due to its proximity to the Siruseri computer park and highway connectivity. Places like Pallavaram, Egmore, and Porur continued to be popular, reporting an average rent increase of 7% every year, year over year.
The affordable to middle income segment is ₹ 4,000-6,000 per square foot. segment, and has attracted the largest demand from home buyers in the IT industry. “This is the best performing segment in Chennai’s history. One of the main reasons this segment is recovering faster is the relative resilience of the IT industry over the past six months. The luxury sector has been the hardest hit and will be the slowest to recover, ”said Sharad Mittal, CEO of Motilal Oswal Real Estate.
In general, ongoing projects have been delayed and completion deadlines have been postponed indefinitely. Now, the developers are getting back to normal step by step. “We resumed construction once the labor and construction materials were available again. Work has resumed with new deadlines, ”says Eshwar de Casagrand.
Liquidity, already a concern before the pandemic, worsened after March as lenders delayed disbursements to buyers and developers. According to Mittal, projects will be delayed between six and eight months on average, and RERA has extended all project deadlines by six months. That is why buyers now prefer completed projects to projects under construction. “In the last two months, the business has recovered and the developers have 80 to 90% of the workforce on site. In the future, we expect fewer delays, ”he said.
The multitude of memorandums of understanding signed by the government, inviting investors to the state, may further stimulate demand for residential space in Chennai. “New project launches continue to be delayed, but real estate activity is expected to pick up,” says Babu. He adds that Millennials move into apartments in urban areas and are not open to PG searches or shared housing. “This year, affordable and mid-segment homes will see more demand than villas and luxury homes. The trend will change once things get back to normal. The homes ready will help jump-start the city’s housing market in the upcoming Christmas season, ”says Babu.
While residential property prices have been stable, Babu says a price revision “is certainly on the horizon.” A price hike is inevitable in the short term, he says, “Due to rising raw material prices, delays in approval of new parcels [usually take 12 to 18 months], ultimately leading to a deficit.