The overall residential demand would decline about 40% year-on-year in FY21, with the affordable segment being the worst hit, due to the higher-than-anticipated slowdown caused by the covid-19 pandemic, according to India Ratings and Research (Ind-Ra).
Demand-side risks combined with a 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.
While sales have declined overall during H1 FY21, Grade-I residential players witnessed a lower year-on-year decline in sales of 13% year-on-year. Ind-Ra believes that the sales will be hampered until the ongoing covid-19 situation stabilises, and thus cash flows for these players could also come under pressure, as is being shown by the 46% year-on-year decline in their EBITDA in H1 FY21.
As per Liases Foras real estate market data for Q2 FY21, while the covid-19 related lockdown resulted in a rise of the unsold inventory levels to over 15 quarters at end-FY20, this increased to over 19 quarters at end-H1 FY21, exacerbated by muted sales in Q1 and a slow recovery in Q2. Of the six key markets, Hyderabad and Bengaluru had the least quarter to sell inventory while Chennai had the maximum unsold inventory, followed by Mumbai Metropolitan Region in H1 FY21.
Residential sales were down 50% yoy to 68 million sq ft in H1 FY21 across the top six cities in India. National Capital Region and Bengaluru saw the maximum decline yoy in H1 FY21 (over 55%) due to the covid-19 related lockdown. Furthermore, the share of total sales for the affordable housing segment witnessed a slight decline (33%) year-on-year compared to H1 FY20 (35%).
The residential sector continues to under-perform as an asset class, impacting the investor demand. Hyderabad remains the only market which has shown a price CAGR in a high single digit, while the other markets have lagged behind with sub-par price CAGR of 1-2% over the past five years.
Disbursements from housing finance companies and wholesale non-banking financial companies (NBFCs) to the real estate sector had declined slightly in Q1 FY21, but recovered in Q2 FY21. However, NBFCs’ assets under management towards real estate have been steadily on decline since Q4 FY19, on the back of the asset sell-down exercises being conducted by most NBFCs.
Ind-Ra expects a longer-than-expected time to recovery for the real estate sector, based on the steep drop indices over H1 FY21
