Residential realty will take 2 years to recover

Mumbai: The residential real estate sector demand will touch the pre-pandemic levels only after 2022-23, a domestic ratings agency said on Thursday.The top-six markets of Bengaluru, Hyderabad, the National Capital Region (NCR), Kolkata, Pune and Mumbai will collectively grow five-ten per cent by area in 2021-22 on improved affordability and work from home needs, Crisil said.

Two of these six markets, Pune and Mumbai, will show a contraction because of the stamp duty cut-fuelled demand in the previous fiscal year, it said. "Demand in Bengaluru, Hyderabad, the National Capital Region (NCR) and Kolkata is set to rise 40-45 per cent this fiscal after plunging 25-45 per cent last fiscal, propelled by better affordability and lower base," its Director Isha Chaudhary said.

The Mumbai Metropolitan Region (MMR) and Pune will likely see a contraction of 10-20 per cent this fiscal, after a 5-15 per cent growth last fiscal, with end-users concluding transactions to benefit from lower stamp duty, Chaudhary added.

The agency said demand in the first half of this fiscal will be impacted by the second wave of the pandemic but a healthy recovery is expected in the second half, much like the previous fiscal. "Absolute demand will catch up with pre-pandemic levels only after fiscal 2023," it said.

Affordability has improved by up to 30 per cent in the six cities during the past five years because of low interest rates, moderate price correction and reduction in stamp duty (especially in Maharashtra in fiscal 2021), the agency said.

Established developers with well-managed balance sheets would grow faster than the industry, consolidate their presence, and sustain their credit profiles, the agency said.

The established developers with a strong track record of timely delivery increased their market share to 25 per cent last fiscal from 21 per cent in FY20, as they recovered faster in the second half and maintained, or even exceeded, pre-pandemic sales, it said.

Anand Kulkarni, a director at the agency, said the well established developers raised Rs 44,000 crore in the last five years via equity, and land and commercial assets monetisation. He added that the improved financials will help tackle stress from the second wave, meet growth needs and keep their credit profiles stable.

Some mid-sized, regional developers, which have historically maintained low leverage, are also expected to sustain their credit profiles, the agency said.

However, leveraged developers dependent on debt as the primary source of capital will continue to struggle, crippled by high debt-to-total assets ratio of above 60 per cent, weak liquidity and limited ability to raise equity and monetise commercial assets.

The agency expects a slowdown in new launches this fiscal, and developers to focus on sale of ready or near-complete properties, leading to a gradual reduction in inventory. It added that the impact of the pandemic on employment and incomes will also be monitored.