THE SUBURBS BECKON
The real estate sector, still in the grip of a severe slowdown, is also witnessing a new trend—buyers looking for healthier surroundings that also fit their budgets
Narendra Sharma, 39, an employee with JSW Steel in Mumbai, had been hunting for a second home for some time when he learned of a new project by a reputed developer of affordable homes in Vasind, some 60 km from Mumbai. He booked an 855 sq. ft apartment at Vasind in April this year, and is expecting possession soon. He says that at Rs 25 lakh, the purchase was a good deal since it also brought him closer to JSW Steel’s factory, where he works. “There are ample open spaces, parks and a playground on the property, at no extra charge,” says Sharma, who took a loan from a private sector bank to fund the purchase.
The Covid-19 pandemic has played havoc with most business sectors, and real estate is no exception. This sector, which contributes 11 per cent to the country’s GDP, has witnessed significant changes in buyer behaviour in recent months as a result of the lockdown. One major change is an increasing preference for properties on the outskirts of cities, as in Sharma’s case. Driving this change are a clutch of factors, including affordability, a preference for home ownership over renting, an increasing number of marquee projects from reputed developers on the outskirts of major cities, a fall in home loan interest rates and a preference for greener, cleaner surroundings than those in cities. Several developers and consultants that india today spoke to confirmed that there has indeed been a change in buyer preferences when it comes to localities, apartment sizes, the facilities on offer and the price.
ON SHAKY GROUND
However, this is not to say that the Indian real estate sector is out of the woods, or that there is a demand for property on the outskirts of cities or in
satellite townships significant enough to lead to an overall revival of the sector. Far from it—the sector is, in fact, still saddled with huge inventories and plagued by plummeting sales.
According to realty consultant JLL, at the end of March this year, the sector had 455,351 unsold units in the key cities of Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune, worth about Rs 3.7 lakh crore. Sales of residential units in the second quarter of the calendar year plummeted by 81 per cent in these cities—from 68,600 units in the second quarter of 2019 to just 12,720 units in the same quarter this year, according to a study conducted by Anarock, another property consultant. New launches have been even more severely hit, with a 98 per cent dip in the second quarter of this calendar year—with merely 1,390 units launched in these cities. Major developers say that home sales have suffered a 60 per cent hit year-on-year, with some developers seeing a demand erosion of as much as 70 per cent.
“Look at the number of problems the sector has faced over the past few years,” says Sanjay Dutt, MD and CEO of Tata Realty and Infrastructure. “First came demonetisation, then the issue of speculative investors, followed by the huge inventory build-up; then came RERA (the Real Estate Regulatory Act), GST (the Goods and Services Tax) and the liquidity crisis, followed by the IL&FS and Dewan Housing Finance debacle, the overall economic slowdown, and now, Covid-19.” The industry has no quick fixes to get out of this quagmire— even small upticks in sales in certain sectors and areas come as a breather. Gulam Zia, executive director of property consultant Knight Frank, says that home sales have fallen as much as 60-70 per cent in the second quarter of 2020 calendar year compared to a year ago.
AFFORDABILITY, THE KEY
Developers say the trend of buyers looking for homes that offer more space and a more peaceful environment has grown out of the challenges faced during the lockdown. “People are looking at places that can serve as homes as well as offices,” says Niranjan Hiranandani, co-founder and MD, Hiranandani Constructions. Hiranandani’s projects in Thane and Powai are self-contained communities, with shops, schools and hospitals on the premises. This has helped the firm get many enquiries from buyers, although not at pre-Covid levels. At present, demand is only 50 per cent of what it was even in the JanuaryMarch quarter of this year. “That was bound to happen, as the lockdown has created a delay in closure,” he says, “but people are interested [in purchasing] and they have money to invest. Banks are willing to give loans.”
This trend is visible in other major cities too. Bengaluru has seen a clear shift in demand towards the suburbs, aided by metro rail connectivity. “Except for the second half of March and in April, interest in projects in the suburbs has grown significantly,” says Ram Walase, MD & CEO of Bengaluru-based VBHC Value Homes, a player in the affordable housing segment. He says his firm sold 20 units in March and 16 in June, with buyers who had been indecisive now firming up their plans. A study by real estate portal MagicBricks also points to a higher demand for affordable homes in the second quarter of calendar 2020. In Delhi, affordable houses, especially in the two and three BHK (bedroom-hall-kitchen) categories, costing below Rs 10,000 per sq. ft, saw better traction compared to other configurations, accounting for three out of four property searches in the metro, says the study. In Bengaluru, the demand for one and two BHK properties is likely to increase further due to the reduction of stamp duty for properties costing up to Rs 35 lakh. In Chennai, 87 per cent of the demand is for two and three BHK properties. Experts say Tier-2 and Tier3 cities such as Lucknow, Indore, Chandigarh, Kochi, Coimbatore, Jaipur and Ahmedabad are also likely to see more demand for homes as a result of the reverse migration from urban professionals whose jobs have been impacted.
Aside from facilities, there is also an increasing demand for larger apartments. A working couple, for instance, will need additional space—say, for a study, where they can work or take calls without disturbing their partners. Families with children also need more private space, for example, to allow children to attend online classes without being disturbed by other things happening in the home. “People are looking for communities with facilities, rather than standalone homes, even if they are far away [from cities or their places of work],” adds Hiranandani.
LOCKDOWN CHALLENGES
The Covid-19 pandemic has thrown up unprecedented challenges for the public. Despite the Centre’s gradual easing of the lockdown from June onward, local authorities in many areas have extended the restrictions, sometimes with even stricter limits than before. Industry players say that this has prompted many “fence-sitters” to decide on buying their own homes, rather than remaining at the mercy of their landlords. They say that this may not be an across-theboard trend, but it is certainly one of the factors fuelling home sales at this time, especially among first-time buyers.
“The trend is now to own a house,” says Dutt, who claims that sales at his company’s properties have not seen a slowdown, citing the examples of his projects in Kochi and Bhubaneswar. “Buyers are looking for psychological security.” He says price is not the only deciding factor—buyers also look at the reputation of the developer, and prefer ready-to-move properties with all clearances in place. There is also new
Major changes in buyer behaviour include an increasing preference for properties on the outskirts of cities, and for those in selfcontained communities with all the amenities
demand from non-resident Indians in the US, Canada and West Asia, who are looking to move back to India as a result of employment challenges in those countries. “These are customers who are financially well-off,” says Dutt. “Some of them own homes abroad, but are now planning to relocate to India.”
Yet another factor driving sales is the low interest rate on home loans— currently as low as 6.7 per cent, as a result of two recent rate cuts by the Reserve Bank of India (RBI). On March 27, two days after the national lockdown began, the RBI had reduced the repo rate (the rate at which commercial banks borrow from the central bank) by 75 basis points. On May 22, it was cut by an additional 40 basis points.
With an increasing number of firms encouraging their staff to work from home because of Covid-19, many are considering relocating to better areas— the commute to and from office is less of an issue. “We are getting several enquiries from those who live in the western suburbs of Mumbai for our project in
Palghar,” says Walase. Potential customers belong to two categories: those who want to move from rented homes to one of their own, and those who want a second home. The jobs scenario is also going through a big change, with offices shifting outside cities into extended suburbs and satellite towns, says Walase. WAIT AND WATCH
However, Zia says that there are many factors that affect whether buyers are willing to move out of cities. These include affordability, the distance from work, the options for their children’s education and the reputation of the developer, among others. “A buyer putting his life savings [into a purchase] will consider many aspects,” he says. “What if work-from-home does not [continue] in the future? Buyers may choose to delay a decision rather than buying today and repenting later.” This may explain why several projects have not found takers despite home rates falling. Deepak Parekh, chairman of mortgage lender HDFC, had said in mid-April that real estate prices would correct by up to 20 per cent due to the lockdown. Although no across-the-board price cuts are visible, developers have reportedly lowered rates on a case-to-case basis. The prices of some luxury properties have reduced by 20-25 per cent in Mumbai, while rental prices in high-end properties have fallen too, by up to 25 per cent. In Delhi, some deals have seen price corrections of around 8 to 15 per cent.
No developer wants to hazard a guess as to how long the pain due to the pandemic will last. However, many say a consolidation is on the cards; developers with deep pockets, good reputations and ready-to-move inventories will survive. Hiranandani is hopeful of a demand revival and sees the industry changing its course to address emerging trends. “Any trend will take five to six years [to fully manifest]. We need to understand what the demand is like and then act,” he says. Covid-19 may have thrown all calculations to the wind, but it has also thrown up new possibilities which developers may do well to take note of.