The year 2020 began with huge expectations from the real estate sector after seeing disruptions due to demonetisation, GST, RERA, and the NBFC crisis over the past few years. Residential real estate sales in India saw a 6 per cent y-o-y growth in 2019 in volume terms. Sales surpassed the launches for the first time since 2016, demonstrating the strong growth potential of this sector. However, the nationwide lockdown amid the Covid-19 pandemic impacted various industries, including the real estate sector, causing a downfall in the first two quarters of 2020. Recovery from the situation seemed unlikely till the third quarter of 2020 until the Government eased restrictions and then the second Covid-19 wave hit the country. However, the pandemic brought a silver lining and made people realise the need for permanent housing in difficult times.

The real estate market started showing signs of revival and growth in the backdrop of positive sentiments related to jobs and the economy since the second quarter of 2020-21 as per the Reserve Bank of India’s (RBI) Financial Stability report of 2021. Both new units launched, and residential units sold across the top eight cities reflected clear recoveries in the second quarter of 2020-21 and quarter three so far, relative to the previous quarter, as per RBI. Strong demand in the residential market also encouraged developers to build new projects which are evident from the 76K+ units launched during the first quarter of 2021, a growth of 38 per cent from last year.

With the expected recovery of the real estate market, the housing finance market is showing a strong growth trend driven by several macroeconomic factors. Indians have a higher proportion of physical wealth in overall wealth (~78 per cent) as compared to other countries, out of which real estate has consistently formed ~45 per cent of physical assets showing significant investment in real estate. Despite this, India’s housing market as a percentage of GDP is still less than other countries, thus, providing a strong headroom for growth. India’s GDP and GDP per capita have shown tremendous growth in the past years, with a strong growth trajectory projected for the future.

India’s demographic dividend will lead to long-term demand growth in the sector. RBI is also pushing the growth of the residential market by keeping policy levels at low rates to increase consumption, which has resulted in low mortgage rates, thus boosting home loan growth. Currently, the size of the housing finance market is ~INR 23 lakh crore and is expected to grow at a CAGR of 15 per cent for the next 5-10 years, as per PGA Labs estimates.

With the overall increase in new launches, developers are also focusing on mid and affordable housing segments. An industry report on real estate housing stated that in 2020, more than 80 per cent of the new launches were in the sub 10 million categories with a strong prospect of similar future growth.2 The ‘housing for all mission’ launched by the Government in 2015 was intended to provide affordable housing to the urban poor with a target of building two crore affordable houses by 31 March 2022. This initiative along with other rules and regulations such as the Pradhan Mantri Awas Yojna (PMAY) and the GST rate cut from 8 per cent to 1 per cent for new and under-construction affordable houses has boosted demand for housing for economically weaker section of the society.

We are yet to see the impact of the second wave of Covid on this sector, yet the growth in the real estate market especially in the residential and affordable housing segment seems likely to continue.

Shishir Mankad is Head (Financial Services), and Dakshita Khanna is Associate Consultant at Praxis Global Alliance.

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