Real Estate

No recovery in sight for residential demand, says India Ratings

Our Bureau Hyderabad | Updated on March 20, 2020

India Ratings (Ind-Ra) forecasts a decline in residential demand in FY20, after showing a slight improvement in FY19.

Furthermore, residential demand could remain suppressed in FY21 as well, given the increasing downside risks to the country’s economic growth should the Covid-19 outbreak sustain through the first quarter of next fiscal, said Ind-Ra in a report. It has projected a GDP growth rate of 5.5 per cent for FY21.

Demand-side risks combined with rising uncertainty over credit availability for the sector in the light of the recent financial market meltdown and increasing risk aversion could add to the refinancing as well as liquidity risks for the sector, it said.

Ind-Ra expects unsold inventory levels to remain stable at around 14 quarters in FY20 and FY21, supported by limited launches and/or deferment of launches in view of Covid-19. Of the six key markets, Hyderabad and Pune have the least quarter to sell inventory while Chennai has the maximum unsold inventory, followed by the Mumbai Metropolitan Region.

City-wise numbers

Residential sales fell 4 per cent YoY to 204 million sq ft in the first nine months of this fiscal, against 279.6 million sq ft in the previous-year period across the top six cities in India. The National Capital Region has seen the maximum decline in that period, while Hyderabad has continued with its strong growth momentum in terms of the area sold. Furthermore, the affordable housing segment, which grew steadily over FY17-FY19, saw the maximum decline in the first nine months of FY20.

The residential sector continues to under-perform as an asset class, impacting investor demand. Hyderabad is the only market which has shown a price CAGR of high single digit, while the other markets have lagged behind with sub-par price CAGR of 1-2 per cent over the past five years.

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 7 per cent YoY in the first nine months of FY21 to 21.3 million sq ft. However, the rating agency believes that the sales and thus cash flows for these players could also come under pressure, if the coronavirus outbreak intensifies in the country.

Published on March 20, 2020

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