Real estate

Money is chasing real estate

“It’s a buyer’s market!”

Covid-19 has played the role of secret Santa Claus for the real estate industry, as more people opted for larger homes and market players consolidated, easing the uncertainty and delivery delays that had away buyers. Mumbai, India’s largest residential market, recorded the highest monthly home sales in a decade in October 2021, according to real estate consultancy Knight Frank India. Hyderabad, Bengaluru and Pune also joined in the festive joy. “Covid has impressed the need for a home, a better and bigger space and more amenities, among others,” said Niranjan Hiranandani, Managing Director of the Hiranandani Group.

Forward and up

So what will prices look like in 2022? Knight Frank India expects a 5% increase. “In the previous phase, say 2011-12, the pricing power rested with the developers. It is a full buyer’s market. About 80% of open transactions are driven by end users. So the ability to pass higher prices on to developers is limited, ”says Prashant Thakur, Senior Director and Research Manager, Anarock Property Consultants.

It took years for the besieged industry to bring back buyers. Besides Covid, low interest rates, falling prices, reductions in stamp duties, and a wave of corporate discounts and programs have helped the recovery. As the second wave dampened momentum, residential sales rose 92% year-on-year to 64,010 units in the third quarter of 2021, according to Knight Frank India, beating previous average quarterly sales by 4%. the 2019 pandemic.

However, with labor costs and the prices of raw materials like steel, cement, aluminum and copper rising sharply, the discount party seems over, at least for now. “There is immense pressure on margins, and another wave could disrupt supply chains, leading to project cost overruns,” said Ashok Tyagi, full-time director and CEO of DLF. Godrej Properties plans to increase prices across the portfolio and has already undertaken low to mid-digit increases in all markets. “We want to balance expanding margins with strong sales volumes in this market,” Pirojsha Godrej, managing director of Godrej Properties, recently told investors on a call. The trajectory of prices in the residential market was “rather upward” and should experience “a more significant rise in prices”, he added.

A modest increase is unlikely to scare away buyers as the affordability quotient remains high, analysts say. “If you look at the inflation-adjusted prices, we’re somewhere in the 2005-2007 era. Affordability is at its best in 25 years, ”said Sharad Mittal, CEO of Motilal Oswal Real Estate.

Interest rate

Another measure of affordability, says Hiranandani, is that “the average price of a house, which once equaled your income over five years while receiving loans, has now fallen to three and a half years. This means that the income has increased. , but house prices have not increased proportionately. “

Part of this has to do with the industry’s hectic run over the past six years. A multitude of political and regulatory decisions have impacted sales and sentiment. Starting with demonetization, the GST, the Real Estate Regulation and Development Act [RERA], and the collapse of IL & FS, back-to-back events halted new launches as inventory piled up. The Covid-19 has dealt another blow. The recovery we are seeing now, according to Thakur, stems from the low level of 2020, which was a “calendar year of devastation.” Even now, it’s gradual and we won’t reach pre-pandemic levels until 2022-2023.

In such a scenario, low interest rates accelerated sales. In some cases, mortgage rates have even fallen to 6.5%. In between, banks, offering upgrades and graduated IMEs, and government programs, have also contributed to easier and faster access to credit for buyers.

“Growth in GDP will mean that demand for real estate will also increase, regardless of what Covid may throw at us,” Hiranandani said.