Residential real estate market witnesses K-shaped recovery: Icra report

NEW DELHI: The Indian residential real estate sector saw green shoots of recovery in the fourth quarter of 2020, aided by festival season and pent-up demand. As per a report by credit rating agency Icra, released on Monday, large-listed players have been major beneficiaries of this demand, resulting in a K-shaped recovery in the sector.

“The residential realty sector is witnessing a K-shaped recovery, with large-listed players recovering at a much better pace than smaller, unorganized players. While the broader market remained 24% below pre-Covid levels on a year-on-year basis in Q3 FY2021 and 39% below pre-covid levels in 9M FY2021, the top 10 listed realty players witnessed a 61% year-on-year growth in Q3 FY2021 and 13% growth in 9M FY2021,” said the report.

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Residential property market has been going through a tough phase the past few years, with the pandemic exacerbating the situation. Covid-19 triggered one of the worst demand crashes in recorded history, with housing sales volumes witnessing a 62% year-on-year decline during Q1 FY2021 across top eight cities of the country.

The pandemic, however, led to consolidation in the sector resulting in increase in market share of listed players.

“Market share of top 10 listed realty players has nearly doubled in the current year, increasing from 11% of sales in FY2020 to 19% in 9M FY2021. Larger developers have been benefiting from demand consolidation and better credit availability. In terms of launches as well, their market share has increased from 11% in FY2020 to 22% in 9M FY2021,” said the report.

Home-buyers had been leaning towards developers with an established track record of on-time and quality project completion even prior to the onset of the pandemic, said Shubham Jain, senior vice president and group head at Icra. This had resulted in large, listed players reporting healthy sales and collections in recent years, despite the prevailing liquidity crisis and unfavourable supply-demand dynamics.

“Post covid-19, better demand prospects, strong balance sheets and adequate liquidity have enabled larger developers to weather the storm better than smaller players, who have been finding it difficult to cope with the prevailing market conditions,” added Jain.

Slower recovery among small developers, however, is likely to pull down the overall recovery of the sector as they account for majority share of the residential real estate market.

“With smaller players making up around 80% of the market, the adverse impact on those developers will weigh heavily on the sector as a whole. Timely liquidation of the high unsold inventory, particularly in over-supplied regions such as Mumbai Metropoliton Region and National Capital Region, and adequacy of operating cash flows to meet debt obligations would be key look-out areas, with most of the smaller residential developers having built-up unsustainable debt…

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