The residential realty sector recorded one of its best quarters in Q4 FY21, with sales across the top eight cities nearing 85 million square feet (msf), reflecting among the highest levels of sales over the last twenty quarters.

Many listed players recorded high performance levels during the quarter, according to an ICRA report.

The robust sales come after the sector witnessed one of the worst demand crashes in recorded history in Q1 FY21, triggered by Covid-19. As against the Q4 record, the pan-India quarterly average sale in FY19 and FY20 stood at 84 msf and 81.5 msf, respectively.

Liquidity crisis

While policy roll-outs in the form of RERA and GST, together with developer focus on deliveries, had started supporting demand from FY19 onwards, the onset of the liquidity crisis impacted sales in FY20 and Covid-19 served as a double-whammy thereafter. However, recovery post the first wave was quick.

Mahi Agarwal, Sector Head and Assistant Vice-President at ICRA, says: “Potential home-buyers, fence-sitters and home-renters increasingly took the plunge towards home-ownership, with the improvement in affordability over the past year further supporting their decision. The low home-loan rates, together with attractive discounts and payment schemes, resulted in improved affordability.”

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Stamp duty reductions in Maharashtra and Karnataka also stimulated house purchases. However, the second wave of the pandemic is impacting housing sales levels once again.

Key demand drivers

As per market reports, housing sales have declined by around 40-50 per cent in April 2021, relative to pre-Covid monthly averages, thereby de-railing the strong demand recovery witnessed post the first wave. Some of the key demand drivers that supported the recovery in H2 FY21 remain in place and are expected to support recovery going forward. The stamp duty reduction had bumped up sales in Mumbai and Pune during August 2020-March 2021. Other cities such as Hyderabad and Chennai also recorded a fast pace of recovery, on the back of continued commercial real estate activity, which, in turn, supported residential demand and high proportion of lower-ticket-size housing.

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Extension on RERA timelines by six-nine months provided additional flexibility to defer outflows in case of weakness in collections.

While the larger, organised players have maintained considerable liquidity buffers, together with high financial flexibility, smaller players will find it difficult to cope with the prevailing market conditions.

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