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Indian Residential Real Estate – Highlights of 2021

We entered 2021 with caution and anxiety as the pandemic was still raging across the world – and the situation in India was no different. 2020 had been a tough year for the Indian residential market as the 1st wave of the pandemic had brought everything to a standstill.

Nevertheless, all industries – including the real estate sector – emerged from the nationwide lockdown in 2020 with a valuable sense of resilience, damage-limiting skills and a new way of envisioning the business environment – especially in terms of technology adoption.

As such, confidence at the beginning of 2021 was high and real estate developers as well as brokerages were well-prepared to face any possible future disruptions.

In 2020, 1.28 lakh units of new residential supply were added across the top 7 cities of India, while sales were clocked at 1.38 lakh units. From the previous peak of 2014, supply was down by 77% and sales were down by 60%. This large-scale decline indicated that the Indian residential market had bottomed out in 2020 and was likely to enter a long-term upcycle from 2021 onwards.

Reviewing the overall performance of the Indian residential real estate market in 2021 shows a definite upswing. Between Jan – Sep 2021, 1.63 lakh units of new residential supply were added across the top 7 Indian cities – 27% higher than 2020 full year supply – and 1.45 lakh units were sold – 5% higher than in the whole of 2020.

While this depicts a cumulative trend, the Indian residential real estate sector’s comeback after the 2nd wave in Q2 2021 was phenomenal, sharp V-shaped one.

A quick look:

    Q3 2021 supply – 64,500 units, 1.8X of Q2 2021

    Q3 2021 sales – 62,800 units, 2.6X of Q2 2021

The Indian real estate sector has transformed significantly during the past few years and the pandemic has accelerated the transformation.

Accelerated organization:

Rally of Real Estate Stocks

In 2021, we witnessed a bull run not only in real estate stocks but also in the broader market. Ample liquidity targeted the stock markets on the back of satisfactory ROI expectations. The arrival of the Omicron strain towards the end of 2021 has slowed this movement to some extent; however, mid-to-long term prospects remain highly positive as COVID-19 has been reined in to a large extent in India, and most businesses are back on track.

Overall, real estate stocks boomed in 2021 as developers garnered good sales and were actively launching new projects. After the 1st wave, the real estate sector’s recovery was pronounced and improved even further after the 2nd wave as the sector imbibed new learnings to overcome challenges.

In a visible consolidation mode, the sector now has large players commanding a significant share in overall housing sales. Housing demand remains high as Indians continue to spend considerable time at home due to WFH and remote working. Also, the macro conditions support home purchases with the interest rates on home loans are at a decadal low (starting at 6.5%) and the overall employment scenario looks secure enough to support long-term financial decisions.

The positivity around physical indicators such as new launches and sales is reflected in the stock markets.

The S&P BSE Realty Index (the broad indicator of real estate stock performance) was at 1,423 on 27th March 2020 (just after the announcement of the nationwide lockdown). On 1st Jan 2021, it was at 2,501 and as of mid-December 2021, it was at 4,028. The phenomenal momentum in the overall real estate market is clearly visible in the index movement.

Top Listed Developers Scored Record Sales in 2021

The top listed and non-listed developers with good corporate governance practices, financial accountability, trust, and brand witnessed very good sales. There is a clear trend emerging wherein homebuyers are willing to pay a reasonable premium for the products being offered by the reputed players.

A few numbers:

Best-performing Segments of 2021

With WFH and online schooling the new normal, there was a high demand for larger houses and as a result, mid-segment (units priced between INR 40 – 80 lakh) and high-end (units priced between INR 80 lakh – INR 1.5 Cr) did well. Altogether, around 65% of the supply between Jan – Sep 2021 came in these segments.

As per ANAROCK’s latest consumer sentiment survey, there was a clear rise in the preference for properties priced over INR 90 Lakh. During the 1st wave, 27% of the respondents preferred properties priced over INR 90 Lakh, which increased to 38% during the 2nd wave.

The luxury segment, which is a value-driven and not a volume game, also did well this year as the homebuyers of this segment looked to close deals at lucrative valuations.

The affordable housing segment, on the other hand, slowed down in 2021 because;

    Significant supply addition (~ 1.7 lakh units) from 2019 till Q3 2021 (1/3rd of overall new launches). As a result, developers throttled back affordable housing supply to take stock of the situation and focus on execution rather than adding new projects.

    An affordable housing development is a long gestation, low margin – high volume business – and in the current market conditions, developers are looking at quick execution and exit.

    COVID-19 impacted the livelihoods of affordable segment homebuyers, causing demand to reduce.

    With the Omicron variant of COVID-19 not impacting India severely as the Delta strain and market conditions improving, the affordable housing segment will pick up again in the next few quarters. The Government continues to remain focused on the affordable housing segment and is doing its best to spur demand through tax incentives to developers as well as buyers.

Outlook for 2022

The Indian residential real estate market seems to have embarked on a long-term upcycle, and 2022 is very likely to fare better than 2021. With COVID-19 now having become a more accepted part of life and Indians getting used to the new normal, businesses are looking to expand. Compared to 2021, the residential real estate market in 2022 will see lower volatility.

Some key notable trends:

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