After the excellent performance of the July-September quarter in the real estate sector, announcements of new projects rose sharply in all the major cities.
New projects show strong demand from buyers
According to a recent report from ICICI Securities, most new launches in August-September 2021 received a strong reaction from clients.
The new projects launched in August-September 2021 received a strong response from buyers. On the day it opened, Godrej Properties sold inventory worth Rs 580 crore in phase 2 of its Woods, Noida project. Prestige Estates was able to sell over 800 plots at a sale value of Rs 850 crore in September 2021 to the Prestige City project in Sarjapur, Bangalore.
Brigade launched 12 new projects in August 2021 in Bengaluru, Hyderabad and Chennai, with monthly sales expected to exceed Rs 800 crore in August-September 2021.
Sunteck Realty has also received an encouraging response for its Vasind MMR launch. Mahindra Lifespaces’ recent Happinest launch in Chennai saw sales of over 200 units with an average ticket size of Rs 400 crore in the month following the launch.
Developers also maintain pricing discipline with price increases of 4 to 5% in new phases of ongoing projects to support record interest rates of around 6.5 to 7%.
Strong triggers are in place
Demand has remained strong due to the decline of COVID-19, record interest rates, a resumption of hiring and strong salary growth in IT and related services. As a result, the demand for housing is growing strongly.
The developers expect the momentum to continue during T3FY22 and prepare their new launches to take advantage of the opportunity. Most of the developers listed have aggressive launch plans starting with H2FY22.
In addition, most major lenders offer home loans at historically low interest rates of around 6.5-7.0%. Even assuming that mortgage rates could rise slightly over S2FY22-23E, they would still remain reasonably low and not significantly hamper buying decisions.
What has changed the dynamics of demand?
Demand dynamics have accelerated for major real estate developers in the past two months after the second wave of COVID. Consumers have realized the importance of home ownership and the increased demand. The strong trend in IT hiring and salary revisions have led to a strong recovery in demand. In addition, the development of infrastructure leads to additional habitable locations in urban centers, ensuring that the demand for housing is here to stay.
They are also benefiting from the consolidation in their favor, as many unlisted and weaker developers continue to struggle. Market commentary after the second quarter results confirmed the trend, as most of the largest publicly traded players look to grow at a double-digit sales value CAGR over the next two to three years.
The office rental cycle is also expected to pick up once the global office occupancy rate returns to normal. The companies are currently in the process of recalling their employees to resume their duties. The office rental trend is expected to normalize over the next 2-3 quarters.
Residential prices are expected to increase by an inch
House prices are expected to rise single-digit over the next 2-3 years after stagnating for the past 5 years as inventory levels have stabilized. Consolidation in favor of larger players will also contribute to the rise in property prices in the near future. The market share of large organized developers grew to over 24% in FY21 of the value of Level 1 residential sales, up from around 11% in FY17.
The author, Vaibhav Agrawal, is CIO at Teji Mandi. Opinions expressed are personal
First publication: STI