Work From Home Didn’t Spur Property Boom In India’s Smaller Cities
Home sales in India’s top markets may have surpassed levels seen before the pandemic but that trend isn’t percolating to smaller cities, contradicting the belief that remote working spurred reverse migration and demand outside the metros.
Tier-II and tier-III cities witnessed a decline in housing sales in the year ended March compared to last year, when national lockdowns were imposed to curb the pandemic, according to data by property consultant Liases Foras. The decline ranged between 10% and 48% over the previous fiscal.
The fall is nationwide. While sales declined nearly 10% year-on-year in Kochi in the south, it fell 31% in Surat in western India and 48% in Ludhiana and Lucknow in the north. Other cities that witnessed a similar trend include Jaipur, Indore and Nagpur.
“People have migrated to city-centric locations as demand was led by upgrades, driven by various incentives from the government,” Pankaj Kapoor, founder and managing director at Liases Foras, said. “That’s why a lot of properties near the central business districts have seen a better traction.”
With various discounts and incentives offered to customers, overall prices in these cities fell 5-15%, Kapoor said.
But that came with a caveat. “We should note some of these markets did see a good momentum after government incentives like stamp duty reductions," he said. “But since the earlier months of the pandemic were complete washout, overall sales numbers have gone down.”
Inventory, too, fell in these regions. Liases Foras attributed it to the absence of too many new launches.
In terms of sales, FY20 was better than FY21, Ankur Gupta, joint managing director at Ashiana Housing, which has projects in Jaipur, Jodhpur and Jamshedpur, told BloombergQuint. Sales in the last two fiscals at 2 million square feet and 1.5 million sqft, respectively.
The work from home model, Gupta said, hasn’t yet influenced people to buy homes in tier II and III cities. “Overall, my belief is people aren’t yet ready to move to smaller towns,” he said. “People still have a mindset of staying within 20-50 km of office, not more than that.”
But for Ashiana Housing, he said there was a silver lining. “We did regular sales in all our projects and second, we were able to drop our marketing cost by almost half,” said Gupta. “That means we spent less money to get more square footage.”
Buyers Seek Land Over Flats
Land is emerging as the most-preferred mode of investment in real estate, trumping apartments, in cities like Jaipur, according to Ravindra Singh, partner at Home Sweet Home, a property consultancy. Plotted development, where land is divided into smaller plots with basic infrastructure, is one such option.
“Sales for apartment units have gone down because prices in this market are a bit inflated and due to Covid-19, salaries haven’t increased,” he said. “Also, there’s a lot of inventory which is why builders haven’t launched new projects.”
In Kerala, however, sales of plotted land declined owing to a combination of factors. Dharmendar Chandak, founder of Kochi Property, a realtor in the coastal city, said the number of deals dwindled to about 11 a year from 25 before the pandemic.
That’s because most of the market is dependent on NRIs and expatriates in the Gulf region, many of whom face job insecurity and uncertainty during the pandemic, he said. “Also, in August-September we had seen a bit of a good momentum as people returning from abroad wanted to buy their own homes,” Chandak said. “But right now, people are in wait-and-watch mode”
In Lucknow market, sales fell 9% year-on-year in FY21, yet branded developers with good track record were able to do good business.
“In the second wave of Covid-19, people are scared, and they want to save their money for medical emergency rather than buying a home,” Ramandeep Singh, president elect of Credai-Uttar Pradesh, said. “We noticed that in the first wave, people realised the importance of homes and are now shifting to bigger homes. Many have started looking at apartment buildings, too, because of the amenities and added safety it provides over standalone plotted developments.”
New Launches Dwindle
New launches haven’t taken off, Singh said, because of approval-related issues and high existing inventory. “Also, the construction cost has gone up in the last few months; builders are waiting for it to stabilise before launching new projects.”
In Maharashtra, the recent government incentives like stamp duty cuts spurred demand in Mumbai, India’s most expensive real estate market, and Pune—resulting in a record number of property registrations. Yet, smaller cities like Nagpur in the state witnessed a 13% year-on-year decline in sales.
People were expecting the builders to cut the prices but due to high approval costs they were unable to do so, said Ashwin Makan, secretary of Vidharbha Realtors Association, which is part of the National Realtors Association.
“People in Nagpur prefer to buy within the city and don’t want to move to the suburbs,” he said, adding that land is expensive in the city known for its oranges. “Even during the stamp duty cut, we saw some momentum only for one or two months, and that too in the affordable housing. But there was little momentum in the premium segment.”
(Corrects an earlier version that misstated a category of cities studied by Liases Foras.)