Large listed players in residential segment recorded one of their best quarters in Q4 FY2021: ICRA

Large listed players in residential segment recorded one of their best quarters in Q4  FY2021: ICRA
Picture Courtesy : Aparna Constructions

The residential realty Industry has recorded one of its best quarters in Q4 FY2021, Together with sales across the top Ten cities nearing  85 million square feet (msf), representing one of the maximum level of earnings over the previous twenty five quarters.  Many listed players also recorded high performance levels, with key players like Brigade Enterprises and Godrej Properties announcing all-time large residential sales and collections during the quarter. This comes following the business witnessed among the worst need crashes in recorded history throughout Q1 FY2021, triggered by Covid-19. As against the Q4 FY2021 record, the pan-India quarterly average sale in FY2019 and FY2020 stood in 84 msf and 81.5 msf, respectively.  While policy roll-outs in the form of RERA and GST, along with developer concentrate on deliveries, had begun encouraging need from FY2019 onwards, the start of the liquidity crisis affected earnings in FY2020, also Covid-19 functioned as a double whammy thereafter. But, retrieval post the very first wave was fast, with the higher significance of home-ownership following the beginning of the pandemic functioning as a basic growth catalyst, given the elongated period of work-from-home and resulting necessity for bigger/better housing.

Throwing more light on the trend and outlook, Ms. Mahi Agarwal, Sector Head and Assistant Vice President in ICRA, states,"Possible home-buyers, fence-sitters and home-renters increasingly took the dip towards home-ownership, together with the progress in affordability within the last year further encouraging their choice.  The very low home-loan prices, together with appealing discounts/payment schemes, led to enhanced affordability. Stamp duty discounts in Maharashtra and Karnataka (for components priced during Rs. 35 lakhs) also sparked house purchases. Currently however, the next wave of the pandemic is affecting home sales levels once more. While the key underlying growth drivers are bolstered by this wave, therefore supporting the probability of a fast recovery once the first effect tapers off, continuation/extension of service measures like interest rate and stamp duty reductions would stay crucial to reinstating the elevated recovery momentum in a timely way."

In terms of demand, according to market reports, housing sales have dropped by approximately 40-50% in April 2021, comparative to pre-Covid monthly averages, and thus de-railing the powerful need recovery witnessed place the very first wave. A number of the major demand drivers who encouraged the restoration in H2 FY2021 stay in place, such as low mortgage rates and income tax sops, especially for affordable housing, and these are expected to encourage recovery moving forward. On the other hand, the stamp duty reduction revealed in the state of Maharashtra has now expired.  This decrease had bumped up earnings in key cities such as Mumbai and Pune throughout August 2020 - March 2021. Other towns, such as Hyderabad and Chennai also recorded a speedy speed of recovery, on the back of continuing commercial property actions, and this, in turn, affirmed residential requirement, and higher percentage of lower-ticket-size housing. Reinstatement of stamp duty measures in Maharashtra, expansion of the same from other nations, and programmer focus on right-pricing and stock liquidation would support a much faster recovery in earnings when the first effect of the next tide recedes, given that the basic requirement driver having to do with the significance of owned home has been further bolstered today.

The supply-side will also require additional support, particularly for the smaller developers, who constitute around 80% of their marketplace. Developers will require adequate liquidity or refinancing flexibility to wave over the disturbance in cash flows and meet debt obligations, at least until demand recovers.  During the initial wave, the moratorium on debt servicing had helped in conservation of money, especially for all those developers with maturing debt obligations.  Extension on RERA timelines by six-nine months given added flexibility to reevaluate outflows in the event of weakness in sets. Certain states also decreased approval costs/construction premiums etc., for. developers for a restricted period. But, no such steps are extended post the start of the second wave, thus producing an increasingly difficult operating and funding environment for developers.

While the bigger, organized players have claimed substantial liquidity buffers, and also have reduced levels of leverage, jointly with large monetary flexibility, smaller players could find it hard to manage the prevailing market requirements. In addition, the bigger developers also were better equipped to handle issues regarding labor accessibility through the provision of onsite labor camps, business of vaccination drives to its employees, etc., whereas smaller programmers confronted issued pertaining to inverse migration and general labor availability.

Concluded Ms. Agarwal,"While basic requirement drivers have bolstered, continued/further support steps, both On the need and the other hand, would function as key enablers towards a timely recovery from the residential realty market. Nonetheless, in accord with ICRA's previous expectations, the recovery wouldn't be uniform, and might rather take the kind of a Kshaped recovery, with big recorded players recovering at a much greater rate than younger, unorganized players. In the absence Of additional measures, however, the recovery period may get elongated, thus putting higher strain on programmer cash flows, Particularly for the smaller ones that have built-up unsustainable debt amounts due to slow-moving stock or high Investment in property assets."