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Banking On Sentiments

This festive season too there is much anticipation and expectation of a boom in housing sales, despite an increase in input costs and a decrease in credit to the construction sector. Can all-time low interest rates on home loans boost sales?

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For consumer-centric industries, the advent of the festive season usually coincides with increased consumer spending and brisk business, thanks to the auspicious nature of our festivities. This is true for the housing market as well, as a lot of home and office buyers consider it propitious to make the purchase during the festive season. However, purchasing a home is also governed by a number of factors like availability of funds, access to loans, price of the house, its location, and so on, and therefore, the festive season may not always spur housing sales.

This festive season though, the developers, builders and analysts are betting on increased housing sales. Their argument: The home loan rates are at their lowest. Banks are offering's ˜festive discount's on home loans thanks to continued vigil on interest rates by the Reserve Bank of India (RBI). But it is also a fact that the overall loan exposure to the construction sector has declined compared to the same period last year. This means that builders may not be seeking fresh credit from the banking channels for newer projects and instead spending their time, money and energy to complete the under-construction projects. Perhaps that is the reason why the July-September quarter has shown increased housing sales.

Uptick in Sales

In actual terms, if the festive period (considered from October till December) manages to generate sales of around 70,000 housing units, it would be celebration time for the builders. And the reason for the optimism stems from great sales numbers reported in the July-August-September period.

As per Knight Frank estimates, sales across the top eight housing markets have risen 92 per cent year on year in the September 2021 quarter. And these numbers have already been running ahead of the comparable data for the 2019 quarterly average. Knight Frank, one of the leading real estate consultancy firms, is not alone in this analysis.  

In actual terms, altogether 55,907 new housing units were sold in the top eight cities during the July-August-September period this year, showing an uptick of 59 per cent when compared to the same period in 2020. What is fuelling the festive sales expectations is really the massive growth in unit sales in the July-September quarter (Q2 FY22) compared to the April-June (Q1FY22) quarter. On a sequential basis, home sales showed a growth of 250 per cent in Q2 FY22 compared to only 15,968 units sold during Q1 FY22, says an industry report by online real estate firm

Anuj Puri, chairman, ANAROCK Group, a leading realty consultancy is also quite confident about the festive period boom (October-November-December quarter). “If our current predictions hold true, the ongoing festive quarter will see at least 35-40 per cent yearly rise in overall housing sales across the top seven cities compared to the same period last year. In the last three months of 2020, the top seven cities saw total housing sales of about 50,900 units,” says Puri.

On a quarter-on-quarter projections, the growth would be in the range of 10-15 per cent. Puri says quoting the ANAROCK Research. “In Q3 2021, the top 7 cities saw total housing sales of around 62,800 units already the best quarterly sales since the pandemic he adds.

Established developers are reporting sales not seen in several quarters. For instance, Sobha has achieved the best-ever quarterly sales for July-September 2021; Macrotech Developers sold Rs 3,000 crore worth properties in the April-September period and Godrej Properties clocked Rs 575 crore in sales on the launch day of the Noida project. Observes Amit Goyal, CEO, India, Sotheby's International Realty, Affluent families are now eager to own a home beyond the normal residential accommodations in metropolitan centres. Tourist destinations like Goa are also emerging as major hotspots for investment by wealthy Indians. The need for larger homes and more space has helped in faster transaction closures, says Goyal.

Established developers echo the sentiments. Despite Covid overshadowing the last 15-18 months, we could display a strong performance. In Q3, 2021, we sold 0.91 msft (million square feet) consisting of 661 units amounting to Rs 507 crore in sales value vis-a-vis, 0.65 msft, 551 units and Rs 402 crore during Q3 of 2020. It is important to note that we achieved these numbers without any new launches during that period, says Ashish R Puravankara, MD, Puravankara.  

Banking on Festive Period

Why are developers so hopeful of better sales numbers in this period? We believe that the nationwide vaccination efforts are likely to boost customer sentiment and drive demand, says Puravankara. His company has a robust launch pipeline for FY22. We will be launching seven projects (5.2msft) in six cities, including Bangalore, Chennai, Coimbatore, Kochi, Mumbai and Pune, in Q3 of FY22. These launches will happen across our brands Puravankara, Provident and Purva Land. These launches will also mark the advent of Provident Housing, our premium affordable housing arm in Mumbai, Pune and Kochi, he adds.

Reeza Sebastian Karimpanal echoes the sentiment. She is President - Residential Business,  Embassy Group, another leading developer from Bengaluru. “Buyers prefer ready-to-move-in homes, as they are exempt from GST and many developers propose attractive options such as move-in-now and pay later offers. We are also observing high demand for houses with 2.5 BHK and 3.5 BHK configurations, so the extra space can be converted into a makeshift workspace, says Karimpanal.

Karan Kumar, CMO, DLF terms today's customer as one who is ‘smarter’ than before. “Unlike in the past, this festive season is expected to see a paradigm shift in the psyche of the Indian buyer, who is more cautious, smarter than before and plans strategically before investing,” says Kumar.  

Mumbai-based Ram Raheja, Director, S Raheja Realty says he is bullish as many Indian buyers wait for an auspicious day to sign the dotted line. Therefore, the festive season will certainly witness a spike in sales, he says.
 According to the industry reports, the NCR market is expected to see nearly 16,000 new units in the festive quarter with a growth of more than 50 per cent over H1 2021. Boost in consumer confidence, vaccination drives, and most importantly the increased attention towards the importance of owning a home will become the key enabler of growth in the residential real estate segment, says Ashish Sarin, CEO, Alpha Corp, a leading Gurgaon-based developer.
 State Bank of India and others have already announced home loan interest rates at 6.70 per cent, regardless of the loan amount. This is an extremely competitive move that virtually negates all the previous limitations which applied to special home loan interest rates. Instead of focusing on just budget housing, this new interest rate is genuinely democratic as buyers from any budget bandwidth will benefit, say experts.  

Cost Challenge

Across the country, the cost of materials essential for housing construction like steel and cement have shot up in recent months. To make the situation worse, the price of coal, iron-ore and crude oil have been jumping almost on a weekly basis. While the steel price has gone up almost by Rs 20,000 per tonne in the last one year, one bag of cement has also witnessed a price increase of around Rs 400-500 in the last few quarters. In value terms, this translates into an increase in construction cost by Rs 700-1,000 per sq ft (almost Rs 7-10 lakh for a 1,000 sq ft house). And this increase virtually negates any net financial gains for a home-loan consumer despite the prevailing low interest rates. The rising input costs are expected to impact any new launches.

However, despite this duality between rising input costs and expectation of better sales figures, affluent homebuyers continue to scout for bigger homes, preferably away from the city's hustle-bustle. “Homebuyers are looking to buy larger homes, led by remote working, and developers are investing in bigger houses and open spaces in the peripheral areas. This festive season would be an opportune time for developers to recover from the losses incurred due to the pandemic, feels Ramesh Nair, CEO - India & MD, Market Development - Asia, Colliers.

Developers are betting on several schemes to further drive home sales. These include no EMIs till possession, free gold coins, cars, furniture, assured returns on investments and other cash discounts to woo homebuyers. “Multiple favourable factors for a limited period will definitely nudge the fence-sitters as well to seize the opportunity. The impact of the festive season is observed in Tier-II cities as well since similar offers are provided by developers,” Nair adds. Let’s keep our fingers crossed and hope for cheer this festive season!