Realty Rewind 2019
Facing severe headwinds due to weak non-supporting economy and liquidity crisis, the real estate sector’s overall performance was below expectations in 2019
The capital crunch amidst a weak economy turned out to be the biggest bane of real estate sector. With the prevailing crisis in the NBFC and banking sector, the developers were starved of funds to either complete a large number of stalled projects with lakhs of incomplete units or launch new projects. According to CITI report, Rs 80,000 crore of value is locked in the stalled projects across seven top cities. With the drying up of NBFC funding, the plight of real estate sector can be well imagined as prior to the crisis, NBFCs catered to 60 per cent of overall capital needs of developers in the absence of adequate bank funding.
Despite the subdued sentiment of the sector, particularly residential real estate hit by fund squeeze, there were however many positives. The measures by the government to ease fund squeeze like recapitalisation of banks and partial guarantee scheme for NBFCs did show positive results. Between September 2018 and September 2019, NBFCs minus HFCs grew from Rs 28.3 trillion to Rs 31.95 trillion, showing average asset growth of 19.7 per cent. The bank credit for NBFCs is also reviving. This improvement has kindled the interest of global investors. Leading global alternative asset manager, Investcorp is in the process of setting up an NBFC focused on affordable housing and addressing last-mile funding.
The end-user driven residential market, despite all odds, was set on the path of recovery. This was clearly evident from the pick up in housing launches and sales. There was 18-20 per cent annual growth in home launches while home sales showed noteworthy growth. According to Anarock, primary residential sales across seven top cities rose 16 per cent in the first three quarters of 2019, with about 1.54 lakh crore worth of homes sold. The housing sales value of top 9 listed players touched Rs 108 billion in Q2 and Q3 of 2019. The stagnant prices, interest subsidy under PMAY, lower home-loan rates and GST benefit did the trick. As a result of this, the unsold residential inventory overhang in the top seven cities got reduced to 30 months by Q3 2019.
It was because of the dominant trend of home-buyers lapping up ready-to-move homes (with zero development risk and zero GST) that the home-sales picked up. According to Samir Jasuja, Founder & MD, PropEquity, residential real estate also witnessed an interesting trend of south India doing significantly better than other parts of the country. However, opposed to rest of India witnessing oversupply, south India fell short in supply with increasing demand from the IT sector.
In the residential sector, while luxury housing got muted response, affordable housing was the dominant theme and it turned out to be a saviour for the residential sector. The rise of affordable housing was made possible due to favourable policies of the government. Earlier, affordable housing was granted infrastructure status and a dedicated fund was created under NHB to give a boost to affordable housing. The policy measures like a hike in carpet area, liberalising income criteria and enlarging the scope of CLSS under PMAY to include mid-income homes (up to Rs 45 lakh) gave much impetus to affordable housing. Further, this year, in a fresh booster dose, the interest deduction limit on home loan for affordable housing was raised to Rs 3.5 lakh.
Thanks to favourable policies, the affordable housing sales gained traction. According to Liases Foras, apartments costing less than 50 lakhs comprised 57 per cent of total sales in the September quarter in 35 cities. The highest number of new launches in this quarter was also in this segment. PropTiger data shows that nearly 4.5 lakh affordable homes will be delivered in 15 months and overall 7.95 lakh units will come into the market by December 2020. With such a creditable performance, affordable housing has drawn many big developers to its fold.
Despite the underperformance, real estate continues to hold promise as an investment-friendly asset class, recording about nine per cent annual increase in investment flows to $6.2 billion. While strong occupier demand and rental appreciation is drawing investors to the commercial office segment, foreign investors have been bullish about affordable housing as well.
Notwithstanding the prevailing low sentiment, the year 2020 heralds hope of positive results due to policy measures initiated to revive realty. The deployment of Rs 25,000 crore Stressed Asset Fund created by the Centre to complete lakhs of stalled housing units will unlock huge value, creating fresh demand and supply, in turn catalysing the process of recovery.
Vinod Behl is the Editor of PropTOQ, a real estate monthly.
Views expressed are strictly personal