Housing sales may see a spurt of

Key Highlights:

• Prediction of Normal rainfall in 2021 augurs well for the Residential segment
• Good monsoon will support RBI in keeping the repo rate down, thereby supporting the low-interest rate regime and keeping the home loan rates benign
• House hunting likely to re-start extensively in the current and next few months as buyers look to evaluate projects based on waterlogging, seepage and related factors
• Normal monsoons do support farm and rural incomes and thus lower the defaults for such loans and this positively impacts the banks’ financial results and provides impetus to the overall financial sector health 
  
  Housing sales may see a spurt of 20-35 %
  in the upcoming monsoons months: JLL
  
• 
  
• Prediction of Normal rainfall in 2021 augurs well for the Residential segment
• Good monsoon will support RBI in keeping the repo rate down, thereby supporting the low-interest rate regime and keeping the home loan rates benign
• House hunting likely to re-start extensively in the current and next few months as buyers look to evaluate projects based on waterlogging, seepage and related factors
• Normal monsoons do support farm and rural incomes and thus lower the defaults for such loans and this positively impacts the banks’ financial results and provides impetus to the overall financial sector health
  

With the macro economic factors this year expected to mirror 2020; there is a likely possibility of  a 20-35 % spurt in housing sales in the monsoon months in 2021 as was seen last year as per a recent study by JLL. While fuel prices have risen in recent months along with rising inflation, the RBI has retained its accommodative stance and kept the repo rate unchanged. With the expectation of moderating inflationary pressures as supply side disruptions are sorted and with home loan rates sticking to their historic lows since last year, the support structure for sales of homes seems intact this year in the upcoming monsoon season as well as the approaching festive season, the study further reveals.

As seen in 2020, with the decent rainfall recorded across the country, there was ample headroom for the RBI to keep the key rates at record lows since the inflation was under check. This encouraged a number of people to come forward and buy homes. Now in 2021 as well, the home loan rates can be expected to remain close to their historic lows, providing a good opportunity for the residential realty sector to do well in the rainy season.

Post the unlocking process which followed the first COVID wave last year, the healthy monsoon ensured that the inflation fell to well below 6% by December 2020 and remained so till the end of FY 2021. This provided the RBI leeway in keeping the repo rate at historic low levels, thereby helping the commercial banks in maintaining home loan rates at near-record lows.

Dr. Samantak Das, Chief Economist and Head Research & REIS, India, JLL said, “The residential real estate sector can expect buoyancy in the sale of residential properties this year in the monsoons and the upcoming festive season, just as last year where there was a 34% jump in the corresponding period as compared to the immediately preceding quarter. The jump in sales can be 20-35% this year depending on how the pandemic shapes out. If there is a third wave in the next few months, other economic disruptions could impact sales growth negatively which may then hover around the lower range of our expectations.”

As we have seen over the past two years, when rainfall is ample, the inflation continues to be within manageable levels which allowed enough headroom to the RBI to keep the policy rate low. Even in 2020 when the pandemic disrupted supply chains, the rising inflation quickly moderated post the unlocking with the good monsoon acting as the buffer towards sustained inflationary pressure. Even this year when there is a prediction of normal monsoons, there is a likelihood of the trend to continue as seen in the last two years and the RBI should be able to keep the Repo Rate at the current levels. This will allow the commercial banks to offer home loans at the existing attractive rates which will continue to drive housing sales. With most  home purchases supported through home loans, the lower home loan interest will continue to have a positive impact on EMI outflows. Interestingly, we can expect house hunting to start in a major way in the current and coming few months, especially in regions like Mumbai Metropolitan Region and Pune, as buyers look to evaluate projects and residential corridors based on waterlogging, seepage, low lying areas prone to flooding and other issues to eliminate locations or projects. The upcoming festive season will also act as a catalyst during this period to support housing sales.

It is worth noting that the housing credit growth has consistently been in the positive territory since 2019 and only saw a negative growth in April 2020 which coincided with the period of the most stringent lockdown during COVID. It is pertinent pointing out that housing credit growth showed sharp spikes in the months immediately following the monsoon season both in 2019 as well as in 2020, which reflects that buying sentiment shows an upward trend following the monsoon season. In a market driven by stable pricing, attractive offers, low interest rates and changing homebuyer preferences, a good monsoon will keep the sentiment positive.

Normal monsoons also result in a good crop which ensures that farm and rural loans, which form a sizeable chunk of priority sector lending and also bad debts, have lower defaults and this positively impacts the banks’ financial results going forward. This will provide further impetus in the financial sector, particularly PSU banks.

A better rural demand, spurred by good rainfall, will also help the sales of white goods like TV, refrigerator, etc. Generally, a positive domestic consumption sentiment would translate into higher capital investments as well by households. Also, if inflation is kept under check it allows for a portion of the household income to be saved. Given that a good monsoon will support RBI in keeping the repo rate down and maintaining an accommodative stance, a low-interest rate regime will be seen in the country going forward.

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            India real estate sector attracts USD 922
            million of investments in Q1, 2021: JLL

Q1 2021 (January-March) registers 21% growth in investments Y-o-Y

• Commercial office assets dominated the deals with USD 864 million
• Hyderabad attracts 42% of total investments; Mumbai at 21%

Institutional investments^[1] continued the momentum during the first quarter (Jan-March) of 2021, registering 21% growth in volumes at USD 922 million, indicating sustained investor interest in India’s real estate market, according to JLL’s Capital Markets Update Q1 2021 released today.

Investments during the quarter were driven by more activity from funds and closed development stage deals and were further supported by external macroeconomic factors. However, the pandemic surge during the second half of March 2021 is expected to delay the investment pipeline in the second quarter, says JLL.

Significant recovery of investments in Q1 2021 at USD 922 million

“Institutional investment momentum continued during the first quarter of 2021, registering 21% growth in volume at USD 922 million, indicating the sustained investor interest in India’s real estate market,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.  “The remarkable resilience of the office market and confidence in its long-term growth led investors to chase quality assets available at the core and development stages. We also see the maturing listed REIT market providing an alternative to other asset classes, which lacked income stability,” he added.

Commercial office space drives investment momentum

Commercial office assets dominated deals with USD 864 million transacted, translating into 94% of the total value in the first quarter. Office space developers liquidated their portfolios to deleverage or raise growth capital for the next phase of expansion. In addition, investors are actively scouting for warehousing assets at present and deals are likely to be concluded in the coming quarters. The housing sector, meanwhile, continues to experience an infusion of last-mile funding for project completion.

Investments by asset class

		(USD million)
Asset class	Q1 2020	Q1 2021
Residential	74	58
Office	505	864
Warehousing	54	-
Hotels	130	-
Grand Total	763	922

Source: JLL Research

Hyderabad leads investments with 42% share, followed by Mumbai at 21%

Hyderabad witnessed the highest capital flows of USD 384 million, accounting for a 42% share of investments during the first quarter of 2021, due to the launch of new developments by the Phoenix Group. Mumbai accounted for 21% share of investments with USD 193 million deployed in its office and residential segments, supported by the reduction in stamp duty introduced by the State Government of Maharashtra.

Investments by city

		USD million
Cities	2020	2021
Hyderabad	100	384
Mumbai	54	193
Delhi NCR	171	107
Pune	8	7
Bengaluru	385	-
Chennai	35	-
Pan-India	10	231
Total	763	922

Source: JLL Research                                                  

Institutional investments to boost growth of India’s REIT market

The successful debut of three listed REITs further positioned India on the radar of institutional investors. The Brookfield India REIT issue of ~USD 521 million was successfully launched in February 2021 and was eight times oversubscribed, with domestic mutual funds being major anchor investors. The market capitalisation of India’s listed REITs stood at USD 6.6 billion as on 16^th April 2021, which is around 30% of the total market capitalisation of Nifty Realty Index companies.

Looking ahead

Though resurgence in the number of new Covid cases has caught the nation off guard, a swift response to the pandemic and lessons from the past are expected to guide our current actions.

Following broad trends are likely to emerge:

• Investors are likely to continue evaluating deals and concluding investment processes with relaxation in conditions
• JLL believes that the listing of more REITs will gather pace in 2021, also influencing the investment momentum
• Apart from commercial office space, recovery in the housing sector is expected to attract funds, especially for projects in the last stages of completion
• Residential sales in Q1 (January-March) 2021 recovered to more than 90% of the volumes witnessed in Q1 2020 (pre-Covid) across the top 7 cities. Smart recovery in demand in 2021 is expected to improve investment prospects. Opportunities for construction finance and last-mile funding would be available
• Entry of new data centre operators and expansion plans of major players supported by infrastructure and PE funds are expected to drive deals
• Platform deals in the logistics sector are likely to remain active as the segment benefitted from growing e-commerce demand as well as pandemic induced demand for cold storage facilities from pharma sector

Institutional investments have stayed on a firm wicket despite the pandemic in 2020 and are likely to gain further pace in 2021.

 

Pune witnessed 55% rise in new residential launches in

Pune witnessed 55% rise in new residential launches in Q3; sales grew 58% sequentially: JLL

 

·         Locations like Kharadi, Hinjewadi, Wakad and Hadapsar accounted for more than 50% of the launches

·         A total of 1,344 units were sold in Q3, a 58% rise from Q2 2020

·         Home buyers preferred projects of developers with established track record

 

Pune witnessed 1,756 new unit launches in Q3 2020, an increase of 55% over the previous quarter, according to JLL Research. This strong growth was on a low base of Q2 2020 which was significantly impacted owing to the severe lockdown restriction in the wake of ongoing pandemic. Prominent locations such as Kharadi, Hinjewadi, Wakad and Hadapsar saw increased momentum and accounted for more than 50% of the launches during the quarter.

 

With economic activities gradually getting back on track, the city is likely to see a strong recovery in sales after the slump in Q2 2020. Housing sales grew by 58% on a sequential basis clocking about 1,344 units. Home buyers preferred projects from developers who have an established track record and which are closer to prominent office locations. There are also a higher number of enquiries for completed and nearing completion projects as compared to those which have recently launched. There is growing acceptance of digital platforms amongst home buyers to complete their home purchase process from raising an enquiry to making the payment through the developer’s online window.     

                  

	Q2 2020	Q3 2020	Growth (%) – Q3 2020 over Q2 2020
Launches (units)	1,135	1,756	55%
Sales (units)	851	1,344	58%

 

Source:  Real Estate Intelligence Service (JLL), 2020, JLL Research

 

 

“Pune witnessed a growth of 55% in terms of new launches over the last quarter. Developers continued to align new supply with demand and majority of these launches were in affordable and mid segments. Further the city has also witnessed healthy traction in the luxury segments which was earlier not visible ” said Sanjay Bajaj, Managing Director, Pune, JLL India. “In the subsequent quarters, the translation of demand into sales will primarily hinge on enhanced consumer confidence, which in turn depends upon the continued implementation of progressive government policies amidst the gradual revival of the Indian economy at large.” “Pertaining to residential, the scenario for Pune has improved significantly in the last few months, sales has certainly increased owing to reduction in the stamp duty by the government, low bank intrest rates, attractive schemes by builders, and competitive rates. The onset of the festive season will help drive sales, and in addition to the reasons stated above we have reached approximately 75% of sales of pre COVID levels and this quarter will see steady growth as well. Recent trends indicate projects that are near completion stage are witnessing larger traction. Buyers are purchasing assets from more renowned developers with a proven track record, added product value and ability to deliver,” he added.

 

Residential market activity all over India, is also being supported by renewed interest from NRIs in Q3 2020,  resulting in more pent up demand in the market and increased enquiries received by developers.

 

“The further easing of lockdown restrictions and the upcoming festive season might help in bringing buyers back to the market. An assessment of years to sell reveals that the expected time to liquidate stock has increased from 3.6 years in Q2 2020 to 4 years in Q3 2020. While the residential space remains unpredictable, favourable supply dynamics could deliver potential upside for both home buyers and developers in the medium-term,” said, Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.

 

Focus on mid and affordable segment continues in the country

New launches were restricted with 12,654 units launched in the third quarter, a decline of 14% quarter-on-quarter. Developers focused on completion of under construction projects and clearing their existing inventory. Hyderabad and Mumbai accounted for over 60% of the total new launches in the quarter. The drop in new launches was driven by Bengaluru, which witnessed a substantial decline of over 80% as compared to Q2 2020. Development focus on mid and affordable segments continued in Q3 2020 with nearly 75% of the new launches in the sub INR 1 crore category. Moving ahead, the focus on these price segments is expected to continue with developers focusing to reap the benefits of strong pent up demand.

 

	Q2 2020 (in units)	Q3 2020 (in units)	Growth (%) – Q3 2020 over Q2 2020
Bengaluru	6,135	1,074	-82%
Chennai	182	1,487	717%
Delhi NCR	Negligible	699	-
Hyderabad	5,034	5,396	7%
Kolkata	Negligible	Negligible	-
Mumbai	2,294	2,242	-2%
Pune	1,135	1,756	55%
Total	14,780	12,654	-14%

 

 

Mumbai includes Mumbai city, Mumbai suburbs, Thane city and Navi Mumbai

Source: Real Estate Intelligence Service (REIS), JLL Research

 

Unsold inventory dips across the country

Q3 2020 witnessed sales outpacing new launches as unsold inventory across the seven markets (Mumbai, Delhi NCR, Bengaluru, Hyderabad, Chennai, Pune and Kolkata ) decreased marginally from 459,378 to 457,427 units. Mumbai and Delhi NCR together account for more than 50% of the unsold stock which are at various stages of construction.

 

	Q2 2020 (in units)	Q3 2020 (in units)	Growth (%) – Q3 2020 over Q2 2020
Aggregate (7 cities)	459,378	457,427	-0.4%

 

Top 7 cities include Delhi NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune and Kolkata

Mumbai includes Mumbai city, Mumbai suburbs, Thane city and Navi Mumbai

Source: Real Estate Intelligence Service (REIS), JLL Research

 

Over the last few years, residential prices in most markets have remained stagnant. Developers have been operating with low margins and the chances of a significant reduction in prices is unlikely. In Q3 2020, prices remained largely stable across all the seven markets when compared to the previous quarter. However, it is important to note that developers in certain markets are providing moderate price discounts to kickstart sales, thereby facilitating cash flows to tide over the crisis in the short term. Moreover, developers are offering flexible payment schemes such as no EMIs for a year and other schemes to attract prospective homebuyers who pressed ‘pause’ in the last few months. This could be the first signs of a broader recovery of the residential market in the country.

 

NOTE: *The comparison pertains to only last two quarters since the current crisis has no parallel and has infused uncertainty which we have not witnessed in the past decades.