Residential realty recovery & investment opportunities

Residential realty recovery & investment opportunities
Sep 2021 , by , in Realty+ Connect

Q4 2020 witnessed increased pace of recovery with opening up of the economy. The housing sales saw growth by 34% on a sequential basis. As per industry experts, more incentives from government for private financial institutions to fund projects can spur the revival 

The pandemic has accelerated home buying across Indian cities and developers are likely to capitalise on this sales momentum. What is vital now is the requisite funding to complete existing projects and with buying sentiment expected to remain strong, to tap the market for new launches. However, investors are cautious of underlying risks despite the optimism. 

As per IBEF, housing launches were 86,139 units across the top eight Indian cities in the second half of 2020. Home sales volume across eight major cities in India jumped by 2x to 61,593 units from October 2020 to December 2020, compared with 33,403 units in the previous quarter, signifying healthy recovery post the strict lockdown imposed in the second quarter due to the spread of COVID-19 in the country. 

Sharing his observation, Irfan A. Kazi, Chief Investment Officer- SWAMIH Investment Fund, SBICAP Ventures Ltd stated, “The pandemic and its after effects seem contrasting for the realty sector, as on one end it has generated high demand and sale conversions for big developers, on the other it has created difficulties for small developers as they struggle to complete stalled projects. The rising cost of construction materials and labour are further adding to their woes.” 

Amit Bhagat, CEO & MD, ASK Property Investment Advisors pointed out that some state government’s incentives of stamp duty cut were the biggest reason of increase in sales. “But, given the compounding of high loan interests, lenders wanting to exit projects sooner and disruption in homebuyers share collections, many developers faced financial difficulties in completing their projects which are ongoing.”

Ramesh Nair, CEO – India & MD, Market Development – Asia, Colliers shared some data points. “According to recent global surveys, in year 2020 hotels’ overall capital flow was reduced by 70%, in office space by 35% while in warehousing by only 7% and in residential by 15%. Globally residential segment suddenly has become the preferred asset class. In India, there is an ongoing real estate sector consolidation and 30 percent of the developers are doing reasonably well. Bengaluru, Mumbai and Pune residential realty did reasonably well during the pandemic and financers who do not invest in land allocation projects fared better. Credibility, track record and execution capabilities of developers were most important for lenders before doing partnership. “

Sharad Mittal, CEO, Motilal Oswal Real Estate agreed, “One of the biggest takeaways from the pandemic for the developers is to be cautious of the loan interest rates and not overleverage themselves. Consolidation of the realty sector accelerated in the last year and given the demand for housing witnessed in 2020, I remain optimistic that with time things will come back to normal and we will see recovery in many segments of real estate.”

Ashwinder R Singh, CEO Residential, Bhartiya City shared that residential markets of Mumbai, Bengaluru and Pune continued to do fairly well during the pandemic while Delhi NCR suffered the most. “From demand side home loan interest rates were at an all-time low and combined with government incentives and relaxations, the residential segment got a boost. While, some developers managed to continue construction work as well with on-site labourers, the small scale developers struggled on all aspects, be it labour scarcity, spike in raw materials of paucity of funds to execute the projects.”

Gautam Saraf, Managing Director, Mumbai & New Business, Cushman& Wakefield was of the view that the residential real estate is still the most effective and valued investment. “The transformation in the residential portfolio in last few years has been about the location. Till recently city centres were favoured by developers, but now we are seeing frenzied activity in locations that were earlier considered mere peripherals. The developers that had the foresight were quick to make the best of the opportunity with rise in demand for bigger affordable homes during the pandemic.”

The experts did concur that new capital is coming in the residential sector both for Greenfield and brownfield as well as distressed projects. New funds are being raised and capitals formed on both domestic and international platforms for residential real estate. The biggest reasons being the maturing of the segment and the inherent strong demand on the back of the rapid urbanization across India. They recommended that investors look at last-mile funding in the residential sector, which is witnessing some latent demand.

The developers were very bullish on a speedy recovery of housing market and are hopeful that in sync, other segments too will see steady growth in coming years as the country progresses with its vaccination drive



Overall the real estate market has been positive and next decade could be a bull run for the Indian real estate market as per market observers. Some of the reasons for positive outlook are the great demand for housing across Indian cities, incentives and reliefs provided by the government and RBI to the buyers and developers offering flexible payment plans. The luxury properties too saw good buyer’s traction in metro cities more so because of the price drop and stamp duty cut in some states. Many homeowners upgraded to bigger homes in luxury property category driven by the desire to have more space and amenities in the wake of the ongoing pandemic. 

Shard Mittal stated that the sector gathered momentum on the back of bottomed-out prices, peak affordability, historically low mortgage rates, and government incentives. Several developers clocked record sales in the last two quarters of FY21. “We believe that the recovery that the sector witnessed in the last few months was more fundamental and demand-led due to which home buying will resume pace in this fiscal as well after this temporary blip,” he added.

Amit Bhagat, said, “We are bullish about the residential space. Homes across the spectrum including luxury and second homes, plotted sales did well in the pandemic and the opportunity for investors is lucrative and counter-cyclical if one understands the risk metrics.”

The fund managers and private lenders demand is to be given priority in insolvency and bankruptcy proceedings. They want protection if an entity lands into the Insolvency and Bankruptcy Code’s (IBC’s) net even after their assistance.



While big realty firms were able to attract capital, small and medium property developers were hard hit with liquidity crunch during the pandemic. They are facing challenges in meeting their working-capital requirements. This has led to JVs and partnerships among realty firms in order to raise funds. However capital flow has been seen from NRIs due to the depreciation in the rupee in the last two years and Indian homebuyers as well given the stagnant prices and low mortgage rates.

Investors too feel that the housing demand has been very strong in the last year and that will continue in the long-term. The PE and alternate invest Funds are finding a great opportunity for investments given that the domestic market is starved of capital with NBFCs pulling back and banks being wary/. Amit Bhagat said, “For an investment, developer’s credibility, intent, customer centricity, product delivery, track record of past delivery and execution capabilities; are the main considerations for eligibility. Sharad Mittal added, “We invest in the lifecycle of the project. Two years back we were focusing more on land acquisition. NBFC and SWAMIH funds provide funds to for last mile funding. We invest our money in existing working projects rather than distressed projects.”

Irfan Kazi stated, “Unlike private equity funds, SWAMIH considers only RERA registered stressed and stalled projects with a positive net worth. The fund, after consultation with government, also brought down the internal rate of return (IRR) from 15% to 12% after several projects could not meet the net worth criteria. The fund looks at projects with no lenders, where the developer was able to generate significant sales initially but which later slowed down. One of the challenges faced is that there is significant reluctance from lenders who refuse to take second charge of the project once the fund comes in. As per regulations, SWAMIH takes first charge on assets and cash flows, which means they get paid first once the project is completed. Lenders are worried that acceding charge would result in change in asset classification, higher provisions, etc.”

Ashwinder Singh agreed that the private lender are concerned about safety of their capital and returns while investing in a project “Many industry players are moving towards standard construction finance industry which carries lesser risk but lesser returns as well. In the residential market we need lazy capitals. It offers viable investment opportunity to patient institutional investors. Moreover, once we bring the technological innovation in the residential market, international capital will be automatically attracted towards the segment. I believe, one SWAMIH fund is not enough to cater to the demand and requirement vast residential market across Indian cities, there should be other funds that should come ahead to help distress projects.”

Gautam Saraf stated, “Government should allow alternative investment funds to act like securitizing trust and can acquire assets from banks. Also, there are several cost charges and dues of various statutory bodies whether its land related premiums or taxes, the same should be relaxed in present scenario for a specific time. IBC has allowed home buyers to play a significant part in the committee of creditors. Maybe the new ARC or bad banks can give assets to the right capital providers. We need more aligned government policy for a structural overhaul of the segment.”

Ramesh Nair shared his analysis, “Housing demand is definitely picking up. In some markets, it has already returned to pre-Covid levels, especially for Grade A and institutionally backed developers. For the first time in the last 6 years, we are also seeing a pick-up in luxury residential and larger apartment. In addition, many companies continue to have a substantial portion of their employees working from home and thus, many prospective homebuyers have gone back to their native towns and cities. This is again a driver for housing demand across metros and smaller cities. This may be the ideal time for home buying as developers are keen on reducing their unsold inventory and are mainly focussing on completing existing projects than launching new ones. Developers are taking a practical approach on pricing and not holding back on inventories. Prices are expected to move upwards as unsold completed inventory significantly reduces. There would also be profit booking in the stock markets which would funnel to the residential markets.” 

Sales in Q1 2021 recovered to more than 90% of the volumes witnessed in Q1 2020 (pre-COVID) across the top seven cities. Moreover, the markets of Chennai, Hyderabad, Kolkata, and Pune surpassed the sales volumes of Q1 2020.



The Central government and RBI had rolled out critical measures including loan moratorium, relaxation of NPA classification norms, one-time restructuring of corporate and home loans, etc. These measures helped in enhancing consumer sentiment and increased traction in the real estate. Though, the actual market transaction volumes continue to be lower compared to pre-Covid levels in majority of the cities. Allowing 100% FDI in completed residential real estate projects through the automatic route and allowing input tax credit on calculation of GST payable in real estate could aid in spurring investment in the Indian residential real estate.;

Amit Bhagat added that insolvency cases should be resolved in twelve months, so that investors can get the certainty of present developer moving out of the project and others taking charge to complete the project. “We need Intercreditor Agreement (or inter-creditor deed) between two lenders which plays a vital role in the right to lien. Also, for any international players foraying in the Indian residential realty portfolio, the return expectation is 23-25 percent because they carry a currency risk.” 

Irfan Kazi sharing his perspective stated that investors more often than not choose the developer and project based on their own risk return profile and accordingly they allocate assets among different asset classes within real estate. 

Ashwinder Singh felt that the perception of the Indian residential real estate sector is that of an unorganized sector. “Only 10 to 11 top developers hold the residential market and other developers are considered off small scale stature by foreign industry players. That’s why this sector comes under B2C and not under the B2B section. Additionally, foreign investors shy away from investing in this segment as homebuyers are considered unpredictable and Indian law enforcement seems to be lacking in terms of transparency and dispute resolution. With government’s focus on infrastructure development, smart cities and easing of regulatory framework, the future looks bright for attracting foreign investments.”

Sharad Mittal agreed that with consolidation and maturing of Indian realty space, there is a growing interest of foreign investment funds in India realty space across asset classes. “Commercial real estate space is dominated by large players. In warehousing, domain experts have entered. Private equity is a very opportunist space, when large players don’t take up a project, other qualified players can work on that project.” 

According to Gautam Saraf, tier 2 and 3 cities too have witnessed rise in residential demand with many people moving back to hometown from metro cities. “Plotted development and standalone residential assets are finding favour among homebuyers given the need for space and safety. Integrated townships are the future development models given that the residents are able to get facilities at their doorstep and well planned living amenities, a fact particular valued during the lockdowns. For developers too, developing land parcels in suburbs are more financially viable than city centre locations due to the high cost of land.”

Ramesh Nair added, “We are now seeing specialization in real estate. There was a time in 2006-2007 when DLF was looking to expand its footprint across other major cities. They were also looking at hotels, IT parks and retail real estate. However, now they are concentrating in their own strong foothold market that is Delhi NCR. Specialization is not only happening in a specific real estate segment such as office, warehousing, co-living or co-working but, also region wise. This trend will continue to grow with time.”

As per Niti Aayog, Indian real estate is estimated to be around $120 billion. In 2040, it is estimated to grow five-fold to reach $650 billion.

The views were expressed during the VCWorld “Convergence” The Global Real Estate Investment Summit” organized By Realty+ in association With BW Businessworld

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