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After having improved slightly over FY17-FY19, the overall residential demand across the top six cities -- Bengaluru, Chennai, Hyderabad, Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune -- is unlikely to grow in FY20, according to India Ratings.
This has been attributed to the slowing economy and the reduced ability of developers to deliver on time, in the light of increased funding challenges for the real estate sector. Ind-Ra expects unsold inventory levels to remain stable, supported by limited launches.
Unsold inventory
As of the first half of FY20 in the six key markets, Hyderabad and Pune had the least QTS inventory, while Chennai had the maximum unsold inventory, followed by MMR.
Residential sales were down 5 per cent yoy at 136 million sqft in 1HFY20, across the top six cities in India. NCR saw the maximum decline , while Hyderabad maintained its strong growth momentum in terms of the area sold.
Further, the affordable housing segment (homes valued up to Rs 50 lakh), which grew steadily over FY17-FY19, saw the biggest decline in 1HFY20, despite the measures implemented by the government, including the provision of interest subvention under the Credit Linked Subsidy Scheme and tax benefits in the form of higher income tax deduction.
Housing sector underperforms
The residential sector continues to under-perform as an asset class, impacting investor demand. Hyderabad is the only market that has shown a price CAGR of high single digits, while the other markets have lagged behind, with a sub-par price CAGR of 1-2 per cent over the last five years.
The demand slowdown has been aggravated by reduced credit availability for the developers amid the ongoing liquidity challenges for non-banking finance companies and housing finance companies, leading to elevated refinancing as well as execution risks for the sector. The government has taken several steps to provide funding support to real estate developers, such as setting up a fund of Rs 250 billion to provide an alternate financing channel to net worth-positive projects that have been stalled due to operational liquidity/ credit availability issues.
Grade-I residential players continue to generate strong sales due to the ongoing market consolidation. Pre-sales for the top 10 listed players grew about 16 per cent yoy in 1HFY20 to about 14.2 million sf.
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