Large listed residential developers record one of best quarters in January-March

                The residential property sector has recorded one of its best quarters in the fourth quarter of the financial year 2020-21, with sales across the top eight cities nearing 85
million sq ft, reecting amongst the highest level of sales over the last twenty quarters, said ratings agency.
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This comes after the sector witnessed one of the worst demand crashes in recorded history during the rst quarter of FY2021, triggered by the Covid-19 pandemic. As against the Q4
FY2021 record, the pan-India quarterly average sale in FY2019 and FY2020 stood at 84 million sq ft and 81.5 million sq ft, respectively.

While policy roll-outs in the form of RERA and GST, together with developer focus on deliveries, had started supporting demand from FY2019 onwards, the onset of the liquidity crisis
impacted sales in FY2020, and Covid-19 served as a double whammy thereafter. However, recovery post the rst wave was quick, with the increased importance of home-ownership 
after the start of the pandemic serving as a fundamental growth driver, given the extended period of work-from-home and consequent requirement for bigger/better housing.

“Potential home-buyers, fence-sitters and home-renters increasingly took the plunge towards home-ownership, with the improvement in aordability over the past year further 
supporting their decision. The low home-loan rates, together with attractive discounts/payment schemes, resulted in improved aordability. Stamp duty reductions in Maharashtra and 
Karnataka (for units priced up to Rs. 35 lakhs) also stimulated house purchases,” said Mahi Agarwal, Sector Head and Assistant Vice President at ICRA.

Now however, according to her, the second wave of the pandemic is impacting housing sales levels once again. While the essential underlying growth drivers have been reinforced by 
this wave, thereby supporting the likelihood of a quick recovery once the initial impact tapers o, continuation or extension of support measures such as interest rate and stamp duty 
reductions would remain key to reinstating the high recovery momentum in a timely manner.

Many listed players also recorded high performance levels, with key players such as and declaring all-time high residential sales and collections during the quarter. In terms of 
demand, as per market reports, housing sales have declined by around 40-50% in April 2021, relative to pre-Covid monthly averages, thereby de-railing the strong demand recovery 
witnessed post the rst wave. Some of the key demand drivers that supported the recovery in the second half of FY2021 remain in place, including low home loan rates and income tax
sops, particularly for affordable housing, and these are expected to support recovery going forward. However, the stamp duty reduction provided in the state of Maharashtra has now 
expired. This reduction had bumped up sales in key cities like Mumbai and Pune during August 2020 - March 2021. Other cities, such as Hyderabad and Chennai also recorded a fast 
pace of recovery, on the back of continued commercial real estate activity, which, in turn, supported residential demand, and high proportion of lower-ticket-size housing.

According to ICRA, reinstatement of stamp duty measures in Maharashtra, extension of the same by other states, and developer focus on right-pricing and inventory liquidation would 
support a quicker recovery in sales once the initial impact of the second wave recedes, given that the fundamental demand driver relating to the importance of owned housing has 
been further strengthened now.

The supply-side will also need more support, especially for the smaller developers, who make up around 80% of the market. Developers will need adequate liquidity and/or renancing 
exibility to tide over the disruption in cash ows and meet debt obligations, at least till demand recovers.

During the rst wave, the moratorium on debt servicing had aided in conservation of liquidity, particularly for those developers with maturing debt obligations. Extension on RERA 
timelines by six-nine months provided additional exibility to defer outows in case of weakness in collections.

Certain states also reduced approval costs/construction premiums etc. for developers for a limited period. However, no such measures have been extended post the onset of the 
second wave, thereby creating an increasingly challenging operating and nancing environment for developers.

Source: The Economic Times