[ecis2016.org] Will the festive season of 2021 change the course of real estate in India? We examine…
The festive season of 2021 is the first one after the reopening of markets following the COVID-19 pandemic. Understandably, the optimism in Indian’s real estate industry is palpable. Even though real estate, owing to the large ticket sizes associated with it, has so far not been part of the cyclic upswing of asset classes, it is anticipated that this sector may steal the show, now that the stock market rally has reached its peak. Does this mean that the festive season of 2021 can change the course of real estate in India? This is a question most analysts are curious to have the answer to.
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While the festive season has just started, it is too early to estimate the exact sales volume and value growth at this point of time. Nevertheless, there seem to be enough catalysts to give rise to optimism, rather than pessimism. How far this optimism is sentiment-driven and to what extent the economic fundamentals support the business take-up, remain uncertain.
Catalysts of housing absorption
- Gradual reopening of markets and businesses
- Stagnant property prices
- Low interest rates
- Availability of ready-to-move-in inventory
- Festive discounts
- Anticipation of correction in overheated stock markets
What could discourage home buying?
- Job market uncertainties
- Stagnant salary or salary cuts
- Inflation and reduced household savings
- COVID-19 third wave
What should home buyers do?
- Property prices are attractive but one should not over-leverage.
- Consider property investments from a long-term use perspective and not for temporary work from home
- Opt for home buying only if your job/business is stable
- Borrow as less as possible and ensure that your debt-to-income ratio is not be more than 35%-40%.
- The loan-to-value ratio (LTV ratio) should not exceed 60%.
- More than festive discounts, look at the overall value proposition of the property.
Festive season 2021 impact on luxury and mid-segment housing
In terms of sales, 2021 has been great for the developers. In spite of the second wave of the Coronavirus pandemic, there was a 67% jump in sales in the residential real estate sector in the first half of 2021. Aditya Kushwaha, CEO and director, Axis Ecorp, believes this momentum will continue in the coming months and there will be a 30%-35% increase in sales. He points out that the market has had its share of ups and downs post the pandemic and the festive season, which starts from October, will bring cheer to the segment.
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“Factors such as low bank interest rates, stamp duty cuts in some states and demand for larger/spacious homes to accommodate remote working, have been instrumental in driving sales in this sector. Certain sectors such as holiday homes, luxury homes and affordable housing will continue to outperform. We believe that the luxury housing market and the holiday home market will get a good boost during festive times. However, the mid-segment residential market may continue to be shaky even in the last quarter of 2021,” says Kushwaha.
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Factors that may boost housing sales during the festive season
Vipul Shah, MD, Parinee Group, agrees that despite the anticipation of a third wave, housing and commercial real estate sales in the third quarter of 2021 have risen significantly. Although the gradual reopening of the economy has led investor sentiment towards the real estate sector to slowly turn around, it is the festive season that would prove to be the real catalyst.
Sales across top property markets are predicted to witness a sequential rise in the ongoing festive quarter of October to December, led by favourable incentives and schemes offered by developers around this time. This, coupled with record-low home loan rates and moderated property valuations, are expected to further revive the demand for residential units. “Understanding the value of home ownership in the backdrop of the pandemic and the added benefits of festive discounts, have managed to create a positive outlook among buyers now,” says Shah.
Festive season offers that can attract home buyers
Vinit Dungarwal, director, AMs Project Consultants, says that home sales surged 113% in the top seven cities even as prices rose in the month of September. This momentum is expected to continue in the coming festive season. Not only will there be interesting launches to look forward to but developers will also be introducing lucrative offers for consumers. To sweeten the deal, developers will have to offer not just reduced pricing on the properties but also make options available that do not demand a high upfront payment. Another good option would be to offer multiple payment options to prospective buyers.
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“Factors such as the depreciating rupee and low-interest rates on home loans, have contributed to growth in a significant manner. All of these have improved the attractiveness of real estate as an investment asset class against other traditional alternatives. Last year, the celebrations were subdued. However, this year, people are looking forward to the festivities and this will help drive sales. Amid the ongoing COVID-19 vaccination drive, discount offers, new residential options and a host of subvention schemes in the market, developers are betting big on the upcoming festive period,” adds Dungarwal.
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Following a lacklustre festive season in 2020, the base level is pretty low and naturally, the expectation is that real estate will bounce back this year. A post-festive season analysis of sales will define to what extent the optimism translated into the purchase commitment. Nevertheless, even a pre-COVID level of sales would be a big bounce back for a sector that has witnessed disappointments during the festive season of the last few years. A lot will also depend upon the sales strategy, as the biggest challenge continues to be how to lure people towards festive offerings. After all, it is a fiercely competitive market now and developers need to reinvent to remain relevant.
(The writer is CEO, Track2Realty)
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