Large Listed Players In Residential Segment Record Best Quarter

The residential realty sector has recorded one of its best quarters in Q4 FY2021, with sales across the top eight cities nearing 85 million square feet (msf), reflecting amongst the highest level of sales over the last twenty quarters, ICRA has said in a release.

According to the rating agency, many listed players also recorded high performance levels, with key players such as Brigade Enterprises and Godrej Properties declaring all-time high residential sales and collections during the quarter.

"This comes after the sector witnessed one of the worst demand crashes in recorded history during Q1 FY2021, triggered by Covid-19. As against the Q4 FY2021 record, the pan-India quarterly average sale in FY2019 and FY2020 stood at 84 msf and 81.5 msf, 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 first 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," the rating agency has said.

Throwing more light on the trend and outlook, Mahi Agarwal, Sector Head and Assistant Vice President at ICRA, says, "Potential home-buyers, fence-sitters and home-renters increasingly took the plunge towards home-ownership, with the improvement in affordability over the past year further supporting their decision. The low home-loan rates, together with attractive discounts/payment schemes, resulted in improved affordability. Stamp duty reductions in Maharashtra and Karnataka (for units priced upto Rs. 35 lakhs) also stimulated house purchases. Now however, 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 off, continuation/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.

While the larger, organized players have maintained considerable liquidity buffers, and have low levels of leverage, together with high financial flexibility, smaller players would find it difficult to cope with the prevailing market conditions. Moreover, the larger developers also were better equipped to manage issues relating to labour availability through the provision of onsite labour camps, organization of vaccination drives for the workers, etc., whereas smaller developers faced issued pertaining to reverse migration and overall labour availability.

Says Agarwal, "While fundamental demand drivers have strengthened, continued/further support measures, both on the demand and the supply side, would serve as key enablers towards a timely recovery in the residential realty industry. However, in line with ICRA's earlier expectations, the recovery would not be uniform, and would instead take the form of a Kshaped recovery, with large listed players recovering at a much better pace than smaller, unorganized players. In the absence of additional measures though, the recovery period may get elongated, thereby placing higher stress on developer cash flows, especially for the smaller ones who have built-up unsustainable debt levels on account of slow-moving inventory or high investment in land assets.