Residential Demand Will Be Aloft In FY21

Residential Demand Will Be Aloft In FY21
Apr 2021 , by , in Interviews

Ravindra Sudhalkar, CEO, Reliance Home Finance

The year 2020 had begun with the hopes of the real estate sector taking flight after a long period of lull. Developments around GST, RERA Act and the NBFC crisis had led the industry’s growth going downhill since 2017-18 and the outbreak of the COVID-19 pandemic pushed it into a deeper rut. The prolonged phase of lockdown implemented since March last year completely halted all construction activities and led to a sharp decline in demand. Industry reports indicated that sales of residential properties and new project launches had become almost completely nil in the top cities in the June quarter.  However, various factors contributed to the steady revival of the residential housing segment since the second quarter of FY2021-22.

What are the growth boosters for residential sales?

The residential sales started recovering by July-September of 2020, mainly driven by positive synergies around affordable housing. The government and the RBI stepped in with supportive policies and regulatory framework, which further sustained the revival.

The government announced policy measures like extension of timelines of RERA projects, treating Covid-19 pandemic as an event of ‘Force Majeure’ under RERA, implementation of several liquidity measures, including a special liquidity scheme of Rs 30,000 crore for housing finance companies and NBFCs. In addition the government also allowed a 6-month moratorium on home loans and extended income tax reliefs to home buyers.  The Reserve Bank of India further provided an impetus for lending and borrowing by reducing the lending rates to historic lows, repo rate at 4% and reverse repo rate at 3.35%.

Driven by low interest rates, easier repayment plans and attractive offers by developers, residential sales across the country increased by 34 percent in the second quarter of FY21, compared to the previous quarter, industry report indicated. By the fourth quarter, residential sales had further increased by 51% as compared to Q3 FY21.

Will there be a sustained positivity through FY2021-22?

There are enough indicators to suggest that the positive momentum in the residential sector will continue through the new financial year 2021-22.

The interest rates are likely to prevail at the current low rates, as the RBI has promised to maintain extend its support too. In its last meeting, RBI’s monetary policy committee (MPC) for the fifth time in a row unanimously  voted to retain the repo rate and the reverse repo rates at 4 per cent and 3.35 per cent, respectively, and also assured of maintaining an accommodative stance for as long as needed. This indicates that the home loan rates, which had slipped to historically 15-year low levels in 2020, will continue to remain at the current lower levels for a good part of FY21-22. The RBI in the last MPC meeting also proposed to extend a special liquidity facility (SLF) of Rs 10,000 crore to the National Housing Bank for one year to support the housing sector. Earlier, in the Union Budget 2021-22, the government had extended tax benefits for buyers and sellers of affordable housing.


How the near future for real estate looks like?

The recovery witnessed in residential real estate is likely to sustain in FY2021-22, driven by favourable fiscal, policy and regulatory environment, enhanced demand, and investment interest. The housing sales will be aloft through the year, driven by an increased demand for affordable and mid-ranged houses from people preferring to buy their own homes owing to the pandemic-related uncertainties of staying in a rented accommodation. The second wave of Coronavirus infections and part lockdowns implemented in many states will also prolong the practice of work from home (WFH), which will further trigger demand for bigger houses and open spaces.

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