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Indian Ratings Suggest That COVID-19 Has Aggravated The Fall In The Bookings of Residential Real Estate

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The ongoing Covid-19 pandemic is likely to push overall residential demand in 2020-21 down over 25% from a year ago, said ratings agency India Ratings and Research (Ind-Ra).

A stable demand, combined with prudent launches by players, had restored some supply-demand balance over FY18-FY19. However, the Covid19 related lockdown has resulted in a rise of the unsold inventory levels to over 15 quarters at end-FY20.

Of the six key markets, Hyderabad and Bengaluru had the least quarter to sell inventory while Chennai had the maximum unsold inventory, followed by Mumbai Metropolitan Region as of end of March.

Residential sales were down 5% on-year at 266 million sq ft 2019-20 across the top six cities in India. The National Capital Region has seen the maximum decline; while Bengaluru has seen a recovery, Hyderabad has continued with its strong growth momentum in terms of the area sold. Furthermore, the affordable housing segment with homes valued up to Rs 50 lakh has seen the maximum decline in the year ended March.

The residential sector continues to under-perform as an asset class, impacting the investor demand. Hyderabad is the only market which has shown a price compounded annual growth rate of a high single digit, while the other markets have lagged behind with sub-par price annual average growth of 1%-2% over the last five years.

Grade-I residential players continue to generate strong sales due to the ongoing market consolidation. Pre-sales for the top 10 listed players grew about 7% on year in 2019-20 to 32.3 million sq ft. However, the agency believes that the sales will be hampered until the ongoing Covid19 situation stabilizes, and thus cash flows for these players could also come under pressure.

A recent publication by the Reserve Bank of India on Consumer Confidence Index and Future Expectations Index in May 2020 suggests changes in consumer sentiments and expectations of the Indian people. Historically, Ind-Ra has evidenced a spill-over effect on real estate when these indices had dropped. Ind-Ra expects a longer-than-expected time to recover for the real estate sector, based on the steep drop in indices in May 2020.

(Source: Economic Times)

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