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The overall residential demand is likely to decline in FY20 after showing a slight improvement over FY17-FY19, according to India Ratings & Research (Ind-Ra).
Residential sales fell 4 per cent to 204 million square feet (SFT) for the nine months of FY20 (FY19: 279.6 million SFT) across the top six cities in India. National Capital Region has seen the maximum decline in 9MFY20 while Hyderabad has continued with its strong growth momentum in terms of the area sold. The affordable housing segment (homes valued up to ₹5 million), which grew steadily over FY17-FY19, has seen the maximum decline in 9MFY20.
The residential sector continues to under-perform as an asset class impacting the 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 last five years.
Grade-I residential players continue to generate strong sales due to the ongoing market consolidation. Pre-sales for top 10 listed players grew about 7 per cent to 21.3 million SFT in 9MFY20. 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.
Ind-Ra reckons the 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 Mumbai Metropolitan Region, as of 9MFY20.
“Furthermore, residential demand could remain suppressed in FY21 as well, given the increasing downside risks to the country’s economic growth (FY21 Ind-Ra’s projected GDP growth rate 5.5%), should the COVID-19 outbreak sustain through 1QFY21,” it said in a note.
Demand-side risks combined with rising uncertainty over credit availability for the sector in the light of recent financial market meltdown and increasing risk aversion could add to the refinancing as well as liquidity risks for the sector, it added.
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