Hard realty: Already down, industry hopes for marginal Covid-19 impact

Analysts expect homebuyers to more likely delay decisions on purchasing property till the air clears on the economic scenario in light of the global pandemic. (Representative image)

Residential property prices across India’s top cities witnessed a dismal growth in the past five years, indicating that the prolonged demand slowdown has kept value appreciation under check. Besides Hyderabad, Mumbai and Bengaluru, price growth in the other top six cities has been either below 1% or in the red.

However, the industry hopes that the Coronavirus outbreak will have a marginal impact on rates, which are already subdued. Analysts expect homebuyers to more likely delay decisions on purchasing property till the air clears on the economic scenario in light of the global pandemic.

As per a report by PropTiger, at 7% compound annual growth rate (CAGR), Hyderabad witnessed the highest increase in property prices among key markets between March 2015 and March 2020. Mumbai and Bengaluru were the other two markets that saw any noteworthy rise — 2.8% and 2.1% CAGR, respectively. Gurugram and Noida, on the other hand, witnessed a decline in values during the same period.

“An ongoing demand slowdown in India’s real estate market has kept price growth in check, as a result of which housing rates in most markets have shown only negligible growth,” group CEO of Housing.com, Makaan.com and PropTiger.com, Dhruv Agarwala told FE.

If Hyderabad stands as an exception, it has more to do with the fact that base prices in what is referred to as India’s pharmaceutical capital were quite low during 2015. The state bifurcation also pushed prices upwards. On the other hand, moderate correction is seen in key NCR markets, primarily because of major delays in project completion by key developers, he added.

In terms of absolute change during the period from March 2015 to March 2020, Hyderabad saw average value of apartments grow 40% to reach Rs 5,318 per square feet (psf). In Mumbai, the average value grew 15% to Rs 9,446 psf. At the third spot was India’s technology capital Bengaluru, where average apartment prices were up 11% to Rs 5,194 psf.

While prices in Ahmedabad, Chennai, Kolkata and Pune inched up marginally, Gurugram and Noida saw rates decline during the same period. The average property value in March 2020 over March 2015 increased by 4% in both Kolkata and Chennai, while the rise in Pune was only 2%. Ahmedabad saw a growth of 3%.

On the impact of the Coronavirus, Agarwala said, “It is too early to gauge any impact on the sector. Till date, the number of queries that we receive on a daily basis on our listing platform is on a rise since the last few months and we haven’t experienced any dip so far. As per our latest report, the prices are lowest in most of the major realty markets as compared to the last five years.”

However, with the Coronavirus pandemic and the lockdown intensifying, it will adversely impact various verticals, particularly commercial and retail, he added.

Others also shared similar views.

A top executive from a leading real estate firm said in the short term, housing prices will not weaken further as they are already low and price appreciation is meagre across major reality markets.

India Ratings and Research (Ind-Ra) in a report this month said it expects the overall residential demand to decline in FY20 after showing a slight improvement over FY17-FY19. Besides, demand could remain suppressed in FY21 as well, given the increasing downside risks to the country’s economic growth should the COVID-19 outbreak sustain through Q1 FY21.

As per the realtors’ apex industry body, Credai, in the immediate term there will be a weak consumer demand. However, strong fundamentals in bigger cities will ensure that homebuyers will be back in market as soon as the Covid-19 blows over.

It expects a slower production cycle in the short term due to supply chain issues, which may lead to delayed deliveries of critical components. This may lead to short term price hikes for Indian substitutes like structural steel, electronic sub-components, etc. However, crude oil may offer some price or logistical relief as global demand will reduce due to the upcoming summer for North America and Europe.