Pent up demand for residential properties to drive sales for few more qtrs

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The pent up demand seen for residential properties might sustain for the next couple of quarters. Home sales rebounded in the top cities such as Mumbai, NCR, Bangalore and Pune primarily due to pent up demand backed by lower interest rates, drop in levies such as stamp duty in states like Maharashtra and so on after a washout in the second quarter of this calendar year.

"The demand for good quality homes will continue. There was a lot of pent up demand and we believe the customers have just been waiting for some course corrective measures. We see that some key measures are now in place and this will help build the momentum in the demand," said Mohit Malhotra, managing director of Godrej Properties.

Recently, the finance minister announced the doubling of the differential between the circle rate and agreement value for residential apartments upto Rs 2 crore from 10 per cent to 20 per cent, resulting in lower tax burden for buyers. Maharashtra government reduced the stamp duty on property transactions from 5 per cent to 2 per cent till December 2020 and 3 per cent till March 31, 2021. Karnataka also reduced stamp duty for property transactions.

Godrej Properties' Chairman Pirojsha Godrei last month said that the company's planned launches in the second quarter were postponed due to regulatory approval delays, but they were happy to see one of the company's strongest ever quarter for sales from existing projects. “With a robust launch pipeline in the second half of the financial year, we expect strong sales momentum during this period,” Godrej said.

Anuranjan Mohnot, managing director and CEO at Lumos Alternate Investment Advisors, a PE firm, said that while residential sales numbers showed impact of pent up demand of a few months only, there is enough pent up demand of previous three to four years to keep the sales momentum on for at least the next few quarters.

Residential real estate made a comeback in Q3CY2020 with sales and new launches rebounding to 65 per cent and 79 per cent of the pre-Covid-19 levels (Q1 2020) respectively, said a recent report by Anarock Property Consultants.

At an industry level, Anarock Property Consultants expects the top 7 cities to cumulatively record a 35 per cent jump in housing sales in the ongoing festive quarter (October to December) against the July to September period (Q3CY2020). If this pans out, housing sales in the whole of CY2020 will have rebounded to more than 50 per cent of the overall sales clocked in CY2019, it said.

Amit Bhagat, chief executive officer and MD, ASK Property Investment Advisors said that properties nearing completion,  plots and under construction affordable/mid segment housing in job growth corridors by reputed and prudent developers have shown remarkable improvement in sales in last three months

"It (demand) is sustainable with more consolidation to follow which will result in a majority of the primary supply in top 6 cities of MMR, Pune, NCR, Bangaluru, Chennai and Hyderabad contributed by top 20-30 players," Bhagat said.

Anuj Puri, chairman of Anarock said it will take at least another quarter to be able to judge to what extent the current rate of demand will sustain going forward.

Rebound better in residential:

Both developers and fund managers believe that residential has rebounded better than commercial properties.

“There are segments in commercial properties which will take a longer time for recovery as compared to the overall average. Off-take in commercial real estate largely depends upon the economic growth story; as GDP numbers improve, we should also see positive trends from commercial real estate,” said Niranjan Hiranandani, chairman at Hiranandani Communities.

Mohnot of Lumos said, "With work from home culture, the residential sector has decoupled itself from commercial office demand as a driver for residential sales, so it might happen that the commercial segment may not do well but the residential segment keep surprising us with excellent sales numbers,” Muhonot said.

Anarock’s Puri said that in the commercial space, big deals are taking time because of ongoing travel restrictions and a wait-and-watch stance with regards to how the Covid-19 pandemic pans out. “Also, commercial has not seen any of the additional demand boosters which currently drive housing demand,” he said.

For instance, Bengaluru-based developer RMZ’s plans to sign a deal with Canada's CPPIB and Japan’s Mitsui got delayed due to the Covid-19 pandemic and cancellation of international flights coming in and flying out of the country.

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