·        While the broader market remained 24% below pre-Covid levels on a Y-o-Y basis in Q3 FY2021, the top 10 listed realty players witnessed a 61% Y-o-Y growth in the same quarter

·        Larger developers have been benefitting from demand consolidation and better credit availability, leading to accelerated market consolidation and a K-shaped recovery; however, adverse impact on smaller developers will weigh heavily on the sector as a whole

The residential realty sector is witnessing a K-shaped recovery as per an ICRA analysis, with large listed players recovering at a much better pace than smaller, unorganized players. While the broader market remained 24% below pre-Covid levels on a Y-o-Y basis in Q3 FY2021 and 39% below pre-Covid levels in 9M FY2021, the top 10 listed realty players witnessed a 61% Y-o-Y growth in Q3 FY2021 and 13% growth in 9M FY2021.  This disparity in sales growth rates led to accelerated consolidation in the aftermath of Covid-19 and the market share of the top 10 listed realty players has nearly doubled in the current year, increasing from 11% of sales in FY2020 to 19% in 9M FY2021. Larger developers have been benefitting from demand consolidation and better credit availability. In terms of launches as well, their market share has increased from 11% in FY2020 to 22% in 9M FY2021.

Trend in Market Share of Top 10 Listed Players	Trend in Sales: Broader Market vs. Top 10 Listed Players

Source: Liases Foras, Investor presentations of companies, ICRA research

Commenting further on the findings, Mr. Shubham Jain, Senior Vice President and Group Head at ICRA, said, “For the broader market, Covid-19 triggered one of the worst demand crashes in recorded history, with housing sales volumes witnessing a Y-o-Y decline of 62% during Q1 FY2021 across the top eight cities of the country. While the de-growth was limited to 24% by Q3 FY2021, larger players recorded a much better recovery, registering Y-o-Y sales growth of 61% in Q3 FY2021. Home-buyers had been leaning towards developers with an established track record of on-time and quality project completion even prior to the onset of the pandemic. This had resulted in large, listed players reporting healthy sales and collections in recent years, despite the prevailing liquidity crisis and unfavourable supply-demand dynamics. The implementation of RERA and GST had already been supporting the market position of these larger players. Post Covid-19, better demand prospects, strong balance sheets and adequate liquidity have enabled larger developers to weather the storm better than smaller players, who have been finding it difficult to cope with the prevailing market conditions.”

A gradual unlocking of the economy and pent-up demand has been supporting housing sales. Moreover, the repo-linked lending rate (RLLR) for home loans has touched a historical low. This has resulted in improved affordability and has been stimulating house purchases, at least from larger, reputed developers with a strong track-record of timely project completion and quality construction. Attractive discounts/payment schemes have provided further stimulus. With the onset of the pandemic, home/holiday-home ownership has also become more important.

Overall operating cash flows for most developers, including the listed players, are expected to witness moderation in the current financial year, resulting in increased reliance on available liquidity and/or refinancing to meet committed outflows. However, the larger, organized players have maintained considerable liquidity buffers, and have low levels of leverage, together with high financial flexibility. These aspects have provided significant support in managing event-related shocks. Thus, most large organized players with established brands, low leveraged balance sheets and adequate liquidity are benefitting from the acceleration in consolidation in the residential real estate segment. Range bound prices and low home loan rates are also expected to further support sales for these players.

Concluded Mr. Jain, “Nonetheless, with smaller players making up around 80% of the market, the adverse impact on those developers will weigh heavily on the sector as a whole. Timely liquidation of the high unsold inventory, particularly in over-supplied regions such as MMR and NCR, and adequacy of operating cash flows to meet debt obligations would be key look-out areas, with most of the smaller residential developers having built-up unsustainable debt levels on account of slow-moving inventory or high investment in land assets.”