Over 19 quarters taken to clear unsold real estate inventory, says Ind-Ra

The Covid-19 pandemic-triggered lockdown had increased the number of quarters taken to clear unsold real estate inventory to over 15 at the end of 2019-20 (FY20). This number has increased to over 19 quarters at the end of the first half (H1) of 2020-21 (FY21), exacerbated by muted sales in the first quarter (Q1) and slow recovery in the second quarter (Q2), said India Ratings and Research (Ind-Ra), quoting data analytics firm Liases Foras.

 

Of the six key markets, Hyderabad and Bengaluru had the least inventory, while Chennai had the maximum unsold inventory, followed by the Mumbai Metropolitan Region in H1FY21, it said.

 

Residential sales were down 50 per cent year-on-year (YoY) to 68 million square (sq.) feet (ft) in H1FY21 across the major six cities. Delhi-National Capital Region and Bengaluru saw maximum decline YoY in H1FY21 (over 55 per cent) due to the lockdown. Also, the share of total sales for the affordable housing segment (homes valued up to Rs 50 lakh) witnessed slight decline (33 per cent) YoY, compared to H1FY20 (35 per cent).

 

"The residential sector continues to underperform as an asset class, impacting investor demand. Hyderabad remains the only market which has shown a price compound annual growth rate (CAGR) in a high single digits, while other markets have lagged behind with sub-par price CAGR of 1-2 per cent  over the past five years.  All cities, with the exception of Hyderabad and Bengaluru, have witnessed a slight decline in prices since FY20," it said.

 

The rating firm believes the overall residential demand will decline 40 per cent YoY in FY21, with the affordable segment being the worst hit, due to higher-than-anticipated slowdown caused by the pandemic.

 

"Demand-side risks, combined with rising uncertainty over credit availability for the sector in the light of increasing risk aversion by financial institutions, could add to the refinancing as well as liquidity risks for the sector," said Ind-Ra.

 

Market consolidation continued to be in favour of Grade I players, it said. "While sales have declined overall during H1FY21, Grade I residential players witnessed lower YoY decline in sales of 13 per cent YoY. Pre-sales for the top 10 listed players in H1FY21 stood at 12.3 million sq. ft. However, sales will remain hampered until the situation stabilises. Cash-flows for these players could also come under pressure, as is being shown by the 46-per cent YoY decline in their earnings before interest, tax, depreciation, and amortisation in H1FY21," it said.

 

Disbursements from housing finance companies and wholesale non-banking financial companies (NBFCs) to the real estate sector had declined marginally in Q1FY21 (compared to FY20 estimates), but recovered in Q2FY21. However, NBFCs’ assets under management towards real estate have been on a steady decline since the fourth quarter of 2018-19, on the back of asset sell-down exercises being conducted by most NBFCs, it said.