Ending govt. benefits worry realtors as buyers knock on doors

Ashish Kulshrestha | The Clear Picture

The Indian residential real estate industry is facing a difficult predicament as buyers queue up to buy properties but lack of working capital and lapsation of the loan moratorium announced by the Reserve Bank of India as well as the lack of further extension of RERA completion timelines are likely to pose a significant challenge in reviving supply and improving fortunes of the developers.

According to property consultant Knight Frank’s India Residential Market Update –Q1 2021, a total of 71,963 units were sold during Q1 2021 (calendar year), 44% more than in Q1 2020. Developers such as Oberoi, Godrej Properties saw their total booking value at Rs 1,531 crore, up 71% on a YoY basis, as per its Q1FY21 investor presentation. It also registered an 86% growth in area bought indicative of the fact that customers are going for larger houses courtesy the pandemic-driven work from home culture. Mumbai-based Oberoi Realty’s registered a 241% increase in booking area for 6 of its top residential projects in Q3FY21 as against Q3FY20, indicating shoots of green from demand standpoint.

This resurgence in demand is due to comparatively lower residential prices, attractive interest rates and higher household savings rate over the past year should support housing demand going forward. Additionally, the recent reduction in stamp duties by Karnataka and Maharashtra governments by 200 and 300 basis points has provided some more cushion to the demand.

However, the developers’ cash flows remain under pressure and their resilience will be further tested as the loan moratorium as well as the extension of RERA completion timelines have now lapsed, said the report quoted above. While the developers have been asking for an extension of the benefits, the only silver lining here has been the allowing of construction activities in several states despite lockdown like conditions which has further complemented the revival of sentiments among the developers and will support in faster completion of projects.

Considering the extremely volatile external situation with indications of a third wave of the pandemic, developers are raising additional funds to prepare themselves for a long haul. Bengaluru-based Embassy Group raised Rs 52 Billion debt at attractive 6.9% coupon and refinanced Rs 32.8 Billion leading to 336 bps interest savings. Godrej Limited raised Rs 1,000 crore in the month of July through allotment of unsecured, redeemable, nonconvertible debentures on a private placement basis for a term of 3 years at 7.5%

The third wave of the virus spread and the likely government action on it will play a key role in determining the health of the residential real estate industry.