Demand in Residential sector to decline 25% due to Covid-19: Ind-Ra

NEW DELHI: The overall residential demand would decline over 25% year-on-year in the financial year 2020-21, after registering a fall of 5% year-on-year in FY20, due to the ongoing COVID-19 pandemic, according to India Ratings and Research (Ind-Ra).

A stable demand, combined with prudent launches by players, had restored some supply-demand balance over FY18-FY19. However, the COVID-19 related lockdown resulted in a rise of the unsold inventory levels to over 15 quarters at end-FY20.

Of the six key markets, Hyderabad and Bengaluru had the least quarter to sell inventory while Chennai had the maximum unsold inventory, followed by Mumbai Metropolitan Region as of FYE20.

Residential sales were down 5% yoy to 266 million square feet (sf) in FY20 across the top six cities in India.

National Capital Region has seen the maximum decline in FY20; while Bengaluru has seen a recovery, Hyderabad has continued with its strong growth momentum in terms of the area sold.

Furthermore, the affordable housing segment, which grew steadily over FY17-FY19, has seen the maximum decline in during FY20.

The residential sector continues to under-perform as an asset class, impacting the investor demand. Hyderabad is the only market which has shown a price CAGR of a high single digit, while the other markets have lagged behind with sub-par price CAGR of 1%-2% over the last five years.

Moreover, disbursements from housing finance companies and wholesale non-banking financial companies to the real estate sector declined steeply in FY20. However, there was a slight uptick in the last quarter in disbursements by non-banking financial companies, based on Ind-Ra estimates.

The agency believes that the sales will be hampered until the ongoing COVID-19 situation stabilises, and thus cash flows for Grade-I residential players could also come under pressure.