PUNE: While the prevailing liquidity crunch, together with subdued demand conditions and inventory overhang, has kept the overall performance of the Indian residential real estate segment muted, sales of units with ticket sizes under Rs. 1 crore have witnessed considerable momentum. Given the changing demographic profile of cities on the back of increasing urbanization and inward migration, housing demand has largely been concentrated in this lower ticket-size segment, and an increasing number of developers are acknowledging this trend. In response, existing phases/new launches are being reconfigured/designed with a focus on lower unit prices. Large realty players have been better positioned to carry out this strategic realignment, given the higher level of balance sheet strength along with operational and financial flexibility available to them.
Giving more insights, Ms. Mahi Agarwal, Assistant Vice President and Associate Head at ICRA, says,, “This right-sizing and right-pricing has further strengthened the already ongoing market consolidation, which has been attributable to home-buyer preferences for products from established developers with a track record of delivery; as well as the industry-level structural changes that have taken place in the form of RERA, GST, and IBC. Consequently, the larger listed players have witnessed robustness in sales levels, followed by a corresponding reduction in unsold inventory.”
Exhibit 1: Trend in Key Operational
Metrics for ICRA’s Sample Set of Listed Entities
Exhibit 2: Quarterly Trend in Key Operational Metrics for ICRA’s Sample Set of Listed Entities
The area sold
during Q3FY2020 by the companies in ICRA’s sample set,
comprising ten large listed entities, stood at a healthy 8.57 million square
feet (mn sq. ft). The sales in the past
few quarters have remained steady at an average of 7.5-8.5 mn sq. ft. which
reflects steady buyer preference for reputed developers with timely deliveries.
Moreover, while the sales value of the area booked increased to Rs. 5,980 crore
in Q3 FY2020, as compared to Rs. 5,492 crore over the same period a year ago,
registering a growth of 9%, average ticket sizes have witnessed a downtrend. Recent launches have largely been concentrated in the
1200-1500 square feet (sq. ft) per unit range, with an average price of around
Rs. 7000/sq. ft, keeping ticket sizes within the Rs. 1 crore bracket. Overall weighted average prices have also witnessed
a de-growth over time, reducing by ~11% over the past three years, standing at
Rs. 6,952/sq. ft in 9M FY2020, as against Rs. 7,823/sq. ft during FY2016.
Exhibit 3: Trend in Average Realization
for ICRA’s Sample Set of Listed Entities
The pace of launches was particularly high in the last two-quarters of FY2019, with players like Sobha, Brigade, and Godrej announcing significant new launches. Post that however, there has been some stabilization in launch velocity, with the same having moderated to 3-4 million sq. ft per quarter. This, combined with steady sales levels has led to a decline in inventory holding. Thus, Quarters-to-sell (QTS) has also seen a declining trend over the past five quarters, moving to 7.6 quarter in Q3 FY2020 from 9.4 quarter in Q3 FY2019.
Exhibit 3: Trend in QTS and unsold
inventory for ICRA’s Sample Set of Listed Entities
While overall home-buyer sentiment and demand are expected to remain muted, established and reputed developers with good quality completed inventory at affordable ticket sizes are expected to continue to witness positive sales momentum. Government initiatives focused on lower priced housing have provided further impetus to these market dynamics.
Further, adds Ms. Agarwal, “On the supply side, the creation of the Rs. 25,000 crore last mile fund and recent RBI announcements with regards to extension in DCCO are expected to boost project deliveries. On the demand side as well, the reduction in requirement to maintain cash reserve ratio by the banks, is expected to provide a boost to the home loan availability and might impact the demand positively. Also, the recent budgetary announcements regarding extension in the permitted additional deduction for interest paid on loans borrowed for the affordable house and capital gain tax relief on property valuations are expected to further support demand. However, the ability of such developers to continue to move in alignment with market requirements and capitalize on the Government stimulus will remain critical for maintaining the current sales momentum.”
The sample set consists of Ashiana Housing Ltd., Brigade Enterprises Ltd, DLF Limited, Godrej Properties Ltd., Kolte-Patil Developers Limited, Oberoi Realty Ltd, Mahindra Lifespace Developers Limited, Prestige Estates Projects Ltd, Puravankara Ltd., and Sobha Limited.
QTS indicates the number of quarters required to sell the stock of unsold inventory; QTS=Closing inventory for the quarter/average of quarterly sales for the previous 4 quarters
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