Housing sector

Evolving mosaic of the housing sector in the Indian real estate space

Indian real estate has started to show signs of recovery amid a positive employment climate since the second quarter of 2020-21

The year 2020 has started with huge expectations from the real estate industry after seeing disruptions due to demonetization, GST, RERA and NBFC crisis over the past few years. Residential property sales in India recorded a 6% year-on-year growth in 2019 in terms of volume. Sales exceeded launches for the first time since 2016, demonstrating the sector‘s strong growth potential. However, the nationwide lockdown amid the Covid-19 pandemic impacted various industries, including the real estate sector, causing a slump in the first two quarters of 2020. Recovery looked unlikely until in the third quarter of 2020 until the government eased restrictions and then the second wave of Covid-19 hit the country. However, the pandemic has brought a silver lining and made people aware of the need for permanent housing in difficult times.

The housing market has started to show signs of recovery and growth amid positive job and economic sentiment since the second quarter of 2020-21, according to the Reserve Bank’s Financial Stability Report. of India (RBI) of 2021. Both new units launched and residential units sold in the eight major cities reflected sharp recoveries in the second quarter of 2020-2021 and the third quarter so far, compared to the previous quarter, according to RBI. Strong demand in the residential market has also encouraged developers to build new projects, as evidenced by the more than 76,000 units launched in the first quarter of 2021, a growth of 38% compared to last year.

With the expected recovery of the real estate market, the housing finance market is showing a strong growth trend driven by several macroeconomic factors. Indians have a higher proportion of physical wealth in overall wealth (~78%) compared to other countries, whose real estate has historically formed ~45% of physical assets showing high investment in real estate. Despite this, India’s housing market as a percentage of GDP is still below that of other countries, providing ample room for growth. India’s GDP and GDP per capita have shown phenomenal growth over the past few years, with a strong growth trajectory projected for the future.

India’s demographic dividend will lead to long-term demand growth in the sector. RBI is also driving growth in the residential market by keeping policy levels low to increase consumption, which has resulted in low mortgage rates, thereby boosting home loan growth. Currently, the housing finance market size is around INR 23,000,000 and is expected to grow at a CAGR of 15% over the next 5-10 years, as estimated by PGA Labs.

With the overall increase in new launches, developers are also focusing on the mid-range and affordable housing segments. An industry report on real estate housing stated that in 2020, more than 80% of new launches were in categories below 10 million with a strong prospect of similar future growth.2 “Housing for All Mission” Launched by the government in 2015 aimed to provide affordable housing to the urban poor with a target of building two crores of affordable houses by March 31, 2022. This initiative, along with other rules and regulations such as the Pradhan Mantri Awas Yojna (PMAY) and the reduction of the GST rate from 8 percent to 1 percent for new and under construction affordable houses has boosted housing demand for the economically weaker sections of society.

We have yet to see the impact of the second wave of Covid on this sector, but growth in the real estate market, particularly in the residential and affordable housing segment, looks likely to continue.

Shishir Mankad is Manager (Financial Services) and Dakshita Khanna is Associate Consultant at Praxis Global Alliance.

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