8% decline in unsold inventory in MMR region combined with strongest ever sales momentum increases probability of price rise.
The dominant role played by the real estate industry towards the country's economic prosperity is well known and the structural growth in housing expected over the next few quarters is likely to cement this position even further. All the requirements for a housing boom are well aligned - a growing working population, rapid urbanization, shift to nuclear families, lowest interest rates ever and a pandemic which has driven home the point of having one’s own home.
Recently Deepak Parekh, chairman of Housing Development Finance Corporation, speaking at the One World One Realty Digital Summit 2021, was quoted saying “It is not only pent-up demand that will push growth but the country is going through a structural transformation in housing demand. This is because of a combination of first-time homebuyers, and customers moving up the property ladder to shift to larger homes or acquiring a second home in another location, that is at play.”
Presently contributing 6-7 percent to the country’s total Gross Domestic Product (GDP), real estate sector in India is expected to reach a market size of $ 1 trillion by 2030 and contribute 13% to the country’s GDP by 2025, according to India Brand Equity Foundation (IBEF) recent report.
The problem between the years 2014 and 2020 was over-supply which induced stagnation / plateauing in the sector. Pumping of cheap money into the real estate sector led to poor quality of projects and thus the excess supply. The situation improved with the NBFC crisis in 2018 as the cheap money flow was restricted and the resultant liquidity crunch led to consolidation amongst developers. This certainly provided the extra-edge to listed and reputed developers. Consumer preferences shifted towards reputed developers because of assurance of quality homes and capability of timely delivery. Coupled with the recent relaxations and lowest interest rates, housing is seeing increasing affordability. As reported by Anarock, Mumbai Metropolitan Region (MMR) witnessed highest y-o-y decline of unsold housing inventory in the last 7 years, thus raising the prospect of price hike.
The annual home price growth along the same lines of wage growth is very vital and moving in that direction will prove crucial for the country's growth. Real estate price growth and a healthy housing market is pivotal in creating middle-class wealth which in turn is vital for the economy's growth. We have seen the trend in countries like China, US, UK wherein the shift from low-income to mid-income and further to high-income has predominantly occurred due to the real estate sector.
Mumbai realty back on growth track
Mumbai is the entertainment, fashion and financial hub of the country that accounts for ~6% of India’s GDP. With a populace of ~20mn in the urban agglomeration, the demand for housing, especially in the affordable and mid-income segment, is bound to rise. The real estate industry is at an inflection point and could potentially see very explosive growth.
As reported by ANAROCK Property Consultants, MMR and Pune collectively accounted for 53% of total sales across top seven cities in India in the first quarter of 2021. In early 2020, the sector was impacted due to Covid-19, but post easing of lockdown, the sector witnessed great momentum. Mumbai alone recorded robust sales in Q1 2021 of 13,750 units against 9,120 units’ year ago – increasing by 51% in a year. The report further stated that Mumbai region witnessed highest yearly decline (8%) in total unsold housing stock in the same period.
With the significant drop in unsold inventory due to the twin factors of lesser supply and continued sales momentum, the supply-demand mismatch will drive possibility of price appreciation.