Why real estate could be a force multiplier for the Indian economy in 2021?
With uncertainties around the economy and jobs now stabilising, we are witnessing signs of growth in the real estate sector as well. Sales have started to pick up primarily driven by the affordable housing segment
2020 has finally ended! This is what we all have longed for as it has indeed been a tumultuous year for the economy that came to a stand-still due to the outbreak of the pandemic. There is finally a sense of optimism with 2021. Uncertainties around the pandemic did hurt the Indian economy, triggering a weak outlook for the GDP, along with a liquidity crunch in.
However with the onset of 2021, there appears to be a silver lining in RBI’s latest predictions that the economy has stopped shrinking since October 2020 and there is hope for growth in Q3 and Q4. There are also predictions of net positive GDP growth for the ‘Oct-Dec 2020’ quarter at 0.1% and rebound growth at 10% for FY 2021-22, making it surpass pre-COVID level. This positivity stems from the fact that since the process of unlocking has started economic activities has grown. And, ever since the onset of the festive season, industries have started to improve their outlook and plans for growth.
With uncertainties around the economy and jobs now stabilising, we are witnessing signs of growth in the real estate sector as well. Sales have started to pick up primarily driven by the affordable housing segment. The demand-supply gap is also getting corrected due to relatively lesser number of new project launches and completion of existing under construction inventories. Our data also suggests that investors have made a comeback as attractive discounts and offers are now galore. Their return augurs well for the industry, which is now witnessing a renewed interest from all segments of consumers indicated by the increased searches on our platform.
The challenges of 2020 also became a catalyst in providing some of the stimuli the industry long needed. The government introduced a string of measures both on the financing as well as policy fronts that would have a positive impact on the real estate sector in the medium and long run. For more reasons than one, 2021 is the year to watch out for as the real estate sector:
Revival in consumer sentiment: Our data suggests that there is a surge in property searches on our platform and it has surpassed the pre-Covid levels by 30%-40%. Also, one interesting outcome of the pandemic is that with lots of good deals and discounts available, it is now a buyers’ market, so much so that even investors have made a comeback. Our latest consumer sentiment survey suggests that around 25% of the respondents are now looking at real estate as an asset class for investments as compared to just 13% three months ago. This bodes well for the industry and the next six months would be crucial for the real estate industry. One can hope that this demand will convert into transactions.
Interest rates are at an all-time low: Since the lockdown, the central bank has cut the repo rate by 115 basis points, which has led banks to reduce interest rates on home loans and this is expected to drive demand in the mid to long term period. Overall since February 2019, the central bank had a total policy rate reduction of 250 bps to boost economic growth. As a result, home loan interest rates are now at an all-time low in a decade driving affordability for consumers. Consumer demand on our home loans platform indicates that the consumer preference is currently in the affordable category with Rs.34 lakh being the average loan amount searched and Rs.20 lakh being the most searched. Most of these searches are now emanating from the cities of Bangalore, Delhi NCR, Pune, Mumbai, and Hyderabad, which form the bulk of India’s residential real estate market.
Government stimulus towards residential real estate: Staying firm to its commitment, the government has introduced multiple stimuli to boost affordable housing and residential real estate at large. The latest being an additional outlay of Rs.18,000 crores for Pradhan Mantri Awas Yojana (Urban), over and above the Rs.8000 crores allocated in the budget. State governments like Maharashtra and Karnataka have already taken the lead in cutting stamp duty and the Housing Ministry has appealed to others to reduce stamp duty, which would lessen the burden on the home buyers. These are time-bound relief measures for real estate and should ease the stress on the sector. Magicbricks’ data suggests that over the past few quarters consumer preference has been towards the affordable segment as homebuyers are now looking for financial stability. Aspirational buying has taken a back seat.
Rise in demand in Tier-2 markets: With Work-For-Homeemerging as the new normal, especially in the IT sector, there is a rise in demand for residential real estate in Tier-2 markets. Buyer searches have almost doubled in 2020 in cities like Vijayawada, Meerut, Mysuru, Aligarh, Siliguri, Moradabad, Kanpur, Nashik, Tirupati, Imphal, Burdwan, Aurangabad, Udaipur, Rohtak, and Srinagar. The desire for migrants to own a house in their home town is now evident. We are also witnessing a rise in demand for plots in such markets.
The year 2020, in more ways than one, is a study in paradox for the real estate industry. It was a year that we would like to forget quickly. But had it not been for 2020, the real estate industry wouldn’t have had some of the stimuli it had desired for long that had finally given it the much needed hope for 2021. How the New Year would pan out is yet to be witnessed, but I would like to believe that the worst is over. Real Estate is now well placed to play a key role in the overall recovery of the economy. In fact, real estate can be the force multiplier for the economy in 2021