2022 to be a strong year for residential real estate: Report

September 14, 2022
Posted in News
September 14, 2022 veps

Despite a rise in construction costs and the RBI’s monetary tightening measures, both sales and new launches in residential real estate have remained firmly on a growth trajectory.

According to a CBRE-CII joint report, unprecedented sales and launch momentum has been witnessed in H1 2022. Property prices have increased across most micro-markets and across segments due to record sales and developers’ decision to pass on rising construction costs to buyers.

In view of this situation, 2022 is expected to be a strong year for the residential sector, with both sales and new launches likely to reach a decadal peak and cross the 200,000-unit mark. While the continued inflation and rising cost of financing may impact stakeholder sentiments in the near term, the overall health of the sector is likely to remain strong owing to positive homebuyer sentiments.

As per the report, the reasons for the continued strength could be the sustained government support for housing, especially to the affordable and mid-end categories which have been key drivers of sales and launch activity in the sector. Moreover, the continued need for home ownership is not only strengthening the market share of Tier I developers, but also encouraging several new players to enter this space.

Appreciation in asset prices could be selective going forward

Asset prices have witnessed an uptick on account of strong momentum in sales as well as the developers’ decision to pass on the rising construction costs (on account of growing input and labour costs) to buyers.

However, going forward, capital value
growth is likely to remain range-bound and across select pockets and categories.

Developers would need to exercise caution amidst an inflationary scenario and an expectation of further repo rate hikes, both of which could impact homebuyers’ purchasing power and decisions. Despite this, end-users are likely to continue to be the main drivers of the market as home ownership sentiment remains strong following the pandemic.

Unsold inventory levels could continue its southward trajectory

We are currently witnessing a fall in unsold inventory levels across most top cities of India, except a select few locations. The fall is attributed to robust sales despite steady new launches. As a result, inventory overhang at a pan-India level is at a six-year low, with average quarters to sell for projects falling from over 15 in 2017 to sub-9 levels in H1 2022. The fall in unsold inventory is likely to sustain in the near term owing to the continued strong momentum in sales.

However, going forward, developers need to exert caution regarding new launches and focus on projects that will generate real demand so as to avoid any strain on unsold inventory levels and quarters to sell.

Better alignment needed between developers’ focus and buyers’ expectations

While developers are now increasingly focusing on larger ticket sizes (over INR 1-2 crore), demand for units priced at less than INR 1 crore has continued to dominate sales in H1 2022. Similarly, the share of units sized 1,500 sq. ft. and above has grown in new launches, but sales continue to be led by units sized between 500 and 1,500 sq. ft.

Strong momentum in land acquisition to continue

We have also witnessed growing interest from both developers and investors alike in this sector. Of the nearly USD 5 billion deployed to acquire nearly 4,000 acres of land / development sites between 2020 and H1 2022, the residential sector accounted for almost 36%, the highest among all real estate sectors. In H1 2022, of the total USD 1.1 billion invested in land acquisition in the country, nearly half went into the residential sector.

Therefore, the sector is likely to continue to hold a sizeable share of the capital inflows this year.

Portfolio expansion outside home markets and in Tier-II cities

Several developers, specifically Tier-I developers across the country, have either forayed or have plans to foray outside their home markets. A few developers have even started testing the waters in Tier-II cities. This is owing to strong momentum in sales currently being witnessed across most cities and potential growth opportunities that these markets present.

Furthermore, now that such developers have gained a repute and scale, they want to leverage their brand in other cities as well.

Source: Financial Express