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Real estate to take a dip this festive season

Building Agencies

The ongoing Covid-19 virus mayhem and concerns over the global economy are likely to curtail a number of residential project launches across the country during the upcoming festive season of Gudi Padwa, Ugadi and Akshaya Tritiya, which usually sees several new launches.

Developers are keen to focus on executing their ongoing projects rather than adding new inventory as they continue to grapple with liquidity challenges.

The previous two quarters have been relatively better in terms of sales velocity. However, most developers are looking to utilize funds received from customers to execute the project and service debt as against spending on new launches.

“The Indian real estate market may witness fewer launches amid many economic risks curbing credit supply in an already liquidity choked economy,” said Niranjan Hiranandani – national president of industry body Assocham and the National Real Estate Development Council (Naredco).

Home sales improved over the last two quarters on higher confidence levels among homebuyers and realty developers. The top 35 property markets, including tier I and II cities, recorded 3% on-year and 5% sequential growth in sales, with 27 cities witnessing increased sales in the quarter ended December.

New launches, an indicator of confidence among builders to start marketing their projects, rose 38% from a year ago. The current scenario may, however, pose challenges.

“Sales activity over the last two quarters was good and encouraging developers to undertake more launches. However, a combination of further pressure on liquidity and concerns over Coronavirus (Covid-19) is likely to force developers to decide against new launches, but sales may see an uptick due to last year’s lower base,” said Pankaj Kapoor, managing director of Liases Foras Real Estate Rating & Research.

Although launches may be tepid, sales are expected to inch up on lower home loan rates and reduced stamp duty in key markets such as Mumbai and Pune.

The sector is also expected to face limited supply of raw material, which are imported mainly from countries facing higher infection rates.

“The uncertainty…is a wake-up call for the industry, with possible shortage of imported raw materials for construction, like elevators and aluminium shutters,” Hiranandani said.

Indian developers are not too dependent on imported steel, cement, bricks and tiles, but the supply of aluminium shutters, mainly sourced from South Korea, and elevators, imported from China, are likely to run into headwinds.

Elevators are needed closer to completion of a project, but limited supply of aluminium shutters — used in pre-fabrication, a construction method increasingly favoured by developers for faster execution — can postpone construction activity.

According to Hiranandani, a sharp fall in oil prices provides a cushion to the Reserve Bank of India (RBI) and government to rejig its monetary and fiscal tools. A credit crunch and lower inflation opens the door for bigger rate and sharper tax cuts. “This will bring in some respite and liquidity in the hands of the fence-sitters to make a purchase and drive the demand-led consumption cycle,” he said.

In addition, steady ready reckoner rates, reduced stamp duty and GST will push discerning home buyers to close deals, resulting in a sales uptick, he pointed out. The government has pushed affordable housing through incentives including interest subvention schemes. Home loan rates, too, have declined, making it attractive for homebuyers.

In December, the country’s largest lender State Bank of India (SBI) reduced its external benchmark rate by 25 basis points. The revised effective benchmark lending rate of 7.8% came into effect from January 1 and new home buyers have been getting loans at an interest rate starting from 7.9%. Earlier this week, the bank reduced its Marginal Cost-based Lending Rate by 10-15 basis points across tenors.