Home Sales Back At Pre-Covid Levels In India’s Top Eight Cities: Knight Frank
Home sales in India’s top cities recovered to pre-Covid levels in the three months ended December, aided by lowest interest rates in decades and a reduction in statutory levies in Maharashtra.
Combined housing sales in the top eight cities recovered to almost 100% of pre-Covid levels at 61,593 units in the fourth quarter of 2020, according to a report by Knight Frank India. That’s up from 54% or 33,403 units in the preceding quarter.
Overall housing sales in the second half, July to December of 2020 fell 19% year-on-year to 94,997 units in the eight cities of Mumbai, Delhi-National Capital Region, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad.
Yet, the fourth-quarter numbers signal a return to normalcy in a sector grappling with a prolonged slowdown even prior to the pandemic. And these underscore a gradual recovery in the economy after two straight quarters of contraction.
Housing sales growth in the second half of 2020 in some cities is fairly encouraging, said Shishir Baijal, chairman and managing director of Knight Frank India, in the report. “In Q3 2020, the real estate market started witnessing revival signs, further recording a significant improvement in Q4."
Mumbai, India’s second-largest residential real estate market, and Pune contributed almost half of the sales in July-December. That can be largely attributed to Maharashtra’s decision of reducing the stamp duty, Baijal said. “Other state governments need to offer something similar to bolster demand across their markets.”
The report attributed revival in the second half of 2020 to three reasons:
- A correction in prices made purchase of homes attractive. Large volume markets Bengaluru, Mumbai and Pune saw year-on-year decline of 1%, 3% and 5%, respectively.
- Home loan rates have fallen to a multi-decadal low, drawing fence-sitters with resources.
- The need to own houses during the pandemic influenced purchases.
New home launches fell 23% over a year earlier to 86,139 units in the second half. But they grew 77% sequentially in the fourth quarter at 55,033. Most high-volume markets saw developers announce new projects on the back of encouraging demand.
Both Mumbai and Pune saw an identical 121% quarter-on-quarter rise in new launches. Hyderabad was the leader with a 480% surge.
The Knight Frank Affordability Index—a measure of equated monthly instalments to income ratio for households—fell further in 2020 across all cities.
Not only have housing prices fallen, low home loan rates aided affordability, the report said. For Ahmedabad, the affordability index has improved to 24% in 2020 from 46% in 2010—or on average a household in Ahmedabad needs to spend 24% of its income to pay home EMI.
Mumbai is still the most expensive market above 60%, but even here the ratio has improved by 32 percentage points since 2010.
Other Highlights For Residential Market
- Sales of bigger apartments rose with homes priced more than Rs 50 lakh contributing 57% of the sales, with the remaining 43% valued lower than that in the second half.
- Weighted average residential prices fell—led by a 9% year-on-year decline in Chennai, followed by Pune and NCR at 5% and 4%, respectively.
- Unsold inventory across the top eight markets fell marginally by 2% to 437,920 units in 2020.
- In the second half, Mumbai had the highest unsold inventory at 1.46 lakh units, followed by the National Capital Region at 1.1 lakh and Bengaluru at 74,764 units.
Office Market Overcomes WFH
Total office transactions in the second half of 2020 dropped 33% over a year earlier to 2.06 million sq metres (22.2 mn sq ft). But, according to the report, it was better than anticipated.
- Gross leasing crossed 115% of quarterly average in the three months ended December, signalling a recovery from the disruption caused by the lockdown. The average stood at 33% in the preceding quarter.
- Office transactions in the eight cities surged 271% sequentially in the fourth quarter to 17.5 million sq ft. Pre-commitments contributed to 24%, signifying that businesses are re-initiating expansion plans, leaving behind the threat from work from home.
2020 may hasten the evolution of the office space into a more flexible, sustainable and wellness-oriented environment in the long run but it’s unlikely that the need for traditional office space will reduce in the foreseeable future, Baijal said in the report.
The information technology sector was the largest office space tenant with a 41% share in the second half of 2020, followed by BFSI (banking, financial services and insurance) and manufacturing sectors with 16% each; other services and co-working sectors recorded 17% and 10%, respectively.
Other Highlights Of Office Market
- New office completions in 2020 dropped 42% and tumbled 52% in the second half year-on-year. But they surged 41% sequentially in the fourth quarter.
- Bengaluru and Hyderabad saw the most supply come online in the second half, accounting for 60% of the 17.2 million sq. ft.
- Bengaluru accounted for over a third of transactions in the second market and was the only one to grow on an annual basis. BloombergQuint earlier reported how the city’s office market weathered the virus turmoil.
- Almost 33% of the total space transacted in Bengaluru was pre-committed by global technology giants such as Google and Amazon.com Inc.
- Average office rents in Bengaluru, Chennai and Hyderabad stayed at 2019 levels.
- Rents in Mumbai, Pune and NCR, however, fell by 5.6%, 6% and 4.4% respectively.