2021 was expected to be the year of recovery for the Indian real estate that weathered the black swan of Covid in the preceding year. Throughout the year the developers put up a brave face and the industry data of the top listed developers was enough to keep the prophets of doomsday in silence. However, the closer look at the sector and the large universe of the developers raises more questions than what it could answer during the turbulent year. Track2Realty looks in to look ahead.
Despite challenges, 2021 was in a sharp contrast to the preceding year when the Covid-induced lockdown had put the real estate transactions at standstill. The labour migration and the buyers’ reluctance to visit the project sites had put a serious question mark over the future of the real estate business back then.
However, it would be fair to comment that 2021 could give some ray of hope for the sector. The year witnesses the cash-rich buyers coming back to the market. What also helped the transactions has been lower cost of borrowing as well as the availability of ready to move inventory in the market. The year by and large has been disappointing for the large universe of the developers who had higher inventory and lower level of brand goodwill.
2022 doesn’t promise to be any different than 2021 as far as the fundamentals of the market and macroeconomic outlook are concerned. As a matter of fact, 2022 could be even more challenging for more than one reason. The rising input cost has put a serious question mark over the feasibility of the business in a price sensitive market. Many of the developers with thin profit margins are facing a catch-22 where the input cost hike is compelling for escalation but the demand side is not ready to absorb the hike.
Furthermore, with today’s apprehensive buyer not in a position to shell out both the rent and the EMI, the new launches would be few and far between. Most of the developers would prefer to either offload the inventory and/or finish off the project.
Pains & gains of 2021
Gain-Market recovery after lockdown
Gain-Cash rich buyers back in the market
Gain-Lower interest rate
Pain-Raw material cost escalation
Pain-Industry recovery not uniform
Pain-No takers for new launches
Challenges of 2022
Input cost & price point
Value engineering to reduce project cost
Inflation challenges for both developers & buyers
Job market degrowth to affect home buying
Viability of new launches
Optimistic overtones
The industry voices are full of optimistic overtones. Vinit Dungarwal, Director at AMs Project Consultants admits that the year 2021 was full of challenges but the sector has also been able to create certain unique opportunities. During this time, developers embraced the digital medium with open arms and reworked traditional models. The testing times also enabled the industry to gauge risks associated with the fluctuations in the market. With technology and data taking centre stage, there was significant demand for new data centres. Concepts such as senior living have also found traction in 2021 and these will continue to thrive in 2022.
“Buyers’ psyche has undergone significant change in this new normal. The homebuyers are being very thorough with their due diligence and want to cover all bases before zeroing in on the property or the project of their choice. Apart from features, locality & interiors, prospective buyers are also considering ROI before taking the plunge,” says Dungarwal.
Aditya Kushwaha, CEO and Director Axis Ecorp believes interest rates are historically low this year and the RBI’s firm assurance in maintaining the status quo has helped in reviving demand in the residential sector. Feature-packed holiday homes, sophisticated luxurious houses and gated townships with well-managed infrastructure have emerged as the most preferred choice for the consumers. It is expected that this growth momentum will continue in 2022.
“The real estate segment has shown a lot of tenacity in 2021 and clocked record breaking festive sales but the escalating cost of raw materials is a cause of concern. More so, as the trends suggest that the prices of raw materials may not stabilize or decrease in the near future. For now, the players have been absorbing the escalating costs but if the prices continue to shoot up, the developers may have no option but to pass on the burden to homebuyers,” says Kushwaha.
Rohit Garodia, Managing Partner, Pecan Reams says the government has been hugely supportive with multiple incentives made available. The stamp duty cuts, lowest-ever home loan rates and developer discounts are all reasons for the massive buying in the real estate market that we have witnessed. Similarly, in 2022, we only expect to see this trend grow. It will continue to evolve as a buyer’s market.
“While there is a rising input cost with the commodities cycle or an upswing in the steel prices being all-time high, we don’t see this as a major issue in the overall demand in the market. Most developers will not look to increase their sales prices but will want to keep the volumes going instead,” says Garodia.
Vipul Shah, Managing Director, Parinee Group says this year the focus is on presenting new-age concepts like going phygital, where spaces will define the user experience in the physical world by making use of technology as an enabler. In the coming year and beyond, we expect hybrid spaces to offer a new-age workplace experience. Developers are experimenting with strategies using Virtual Reality, Augmented Reality and Machine Learning catering to a smart and frictionless workforce.
“In 2022, we expect the positive attitude to continue. Ready to move spaces are in demand and since they are available in limited units, this demand will shift to under-construction projects in the coming year. Factors that include an overall improvement in the job market, resumption of economic activity, pent-up demand etc. will continue to guide the evolving real estate market in 2022,” adds Shah.
Forecast
The year 2011 has been witness to K-shape recovery where a handful of big brands could gain a sizable market share. It has nevertheless not been a uniform recovery for the large universe of the developers. 2022 won’t be any different either. However, the real challenge for the year ahead is the price point at a time when the pressure of rising input cost is on the developers, but passing it on to the buyers could prove to be even more challenging.
Ravi Sinha
@RaviTrack2Media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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