Q2 home sales up 60% sequentially due to unlocking, pent-up demand: Icra

Buoyancy supported by demand from returning NRIs; digitisation plays key role in enabling sales

Sales volumes of residential units bounced back considerably with a QoQ Q growth of 60 per cent across property markets in the second quarter of the current fiscal, says a new report by rating agency Icra.

As per an Icra note, the recent improvement was primarily driven by a gradual unlocking of the economy, pent-up demand; and improved affordability on the back of reduced home loan rates and attractive payment schemes/discounts. 

The residential real estate segment recovered sharply in Q2FY21, after a huge decline in Q1FY21. The Covid-19 pandemic had triggered one of the worst ever demand crashes in the Indian residential real estate segment. Overall, housing sales volume declined 50 per cent YoY in H1FY21 across the top eight cities in the country.

Shubham Jain, Senior Vice President and Group Head, Icra, says, “An increasing focus on home ownership, both from domicile residents and NRIs, has been aiding sales. Reverse migration has further supported an increase in housing demand in tier-2/3 cities. Notably, increasing digitisation has played a key role in enabling sales in the current environment, with extensive use of digital marketing and digital engagement tools by developers, aiding online home sales and transaction payments. The crisis has thus pushed the sector towards widespread technology integration.

Buyer preferences for rightly priced inventory at advanced stages of construction continued to be in place, although larger format units seemed to be finding increasing favour, possibly due to the requirement for dedicated work and study areas. While quarterly average sales for under-construction units registered a decline of 78 per cent during H1 FY2021, a significantly lower decline of 29 per cent was noted for advanced-stage/completed projects. With the higher pace of recovery for such inventory, this segment contributed to over half the Pan-India sales generated in Q2FY21. This preference, combined with the significantly higher supply of under-construction units versus advanced-stage units, is likely to pose challenges for developers who lean heavily on sales from under-construction inventory. However, demand for under-construction units will remain supported to some extent by buyers preferring staggered payment, and parallel plans of liquidating other holdings.

In terms of flat formats, 1.5/2 BHKs have traditionally remained the highest contributors to supply and sales, followed by 2.5/3 BHKs. While the sales mix remains similar post Covid, the absorption level for 5BHK and other large formats has increased significantly in Q2FY21. This is possibly due to rising preferences for dedicated work/study areas and second/holiday homes, due to expected changes in working and living styles going forward. Increased demand from NRIs on the back of return to the homeland may also have supported the trend, as such buyers typically opt for larger format flats, and the current depreciation of the rupee, together with attractive deals would have supported their purchasing power, ICra said. Demand has also increased considerably for 1BHKs, primarily from first-time home buyers, reflecting the growing importance of owning a flat, it added. 

In terms of ticket size, the affordable and mid categories have remained the highest contributors to sales, followed by the upper-mid segment, both before and after the onset of the pandemic, primarily due to low ticket sizes and a high level of Government incentives. The uptick in absorption levels during Q2FY21 has also been driven by the affordable and mid/upper-mid segments, indicating the higher resilience of these segments to the demand headwinds currently prevailing in the residential realty market. Thus, established developers with a higher proportion of well-priced inventory, catering to these sweet spots, are likely to see a quicker pace of recovery in sales, it said.