Real Estate In The Face Of Adversity

• While Ahmedabad is among the most affordable markets in India, it has also been adversely impacted by the ongoing slowdown in sales in the Indian residential market. The industry had just come to terms with sweeping regulatory changes of RERA, GST and the state government’s Online Development Permission System (ODPS) for granting building permissions to real estate developers, while the funding crisis intensified in 2019. The COVID-19 pandemic that struck in full force during Q2 2020 has only exacerbated an already dire situation

• The ongoing liquidity crisis in the industry has had a telling impact on its residential market with developers focusing on liquidating existing inventory and launching products more in line with the evolving preferences of homebuyers. Sales had shown signs of stabilising and averaged 8,225 units per half-year period during H1 2018 – H2 2019 compared to the preceding four analysis periods of H1 2016 – H2 2017 that averaged 7,924 units. H2 2019 had clocked the highest sales since demonetisation at the end of 2016 and the decay in homebuyer sentiment held the promise of subsiding in subsequent periods

• However, after five consecutive half yearly periods of modest but positive growth, sales in the Ahmedabad market fell by a massive 69% YoY to a decadal low of 2,250 units during H1 2020. The slowdown in the economy and weakness in the housing market impacted homebuyer enquiries even in Q1 2020

• The unprecedented disruptions caused by the pandemic imposed lockdown in the economy and a complete shutdown of all activity in the real estate industry ensured that sales plummeted to near inconsequential levels in Q2 2020. Innovative marketing plans such as online presentations of residential projects and aggressive sales strategies like allowing refundable deposits on booking and facilitating homebuyer financing by developers, salvaged some sales at the end of the period for top tier developers in an otherwise disastrous quarter for the market

• The under INR 5 mn ticket size which has always seen the most demand in Ahmedabad claimed 71% of sales in H1 2020 as well. The INR 2.5 – INR 5 mn sub-segment made up almost 46% of the total sales while properties sold in the ticket size under INR 2.5 mn constituted about 25% of the same

• 36% of total sales occurred in the North zone. Locations such as New Ranip, Gota and Chandkheda which have a high concentration of affordable projects fared well in terms of attracting end-users largely comprising the blue collared working population. West came a close second with a 30% share in the city’s sales volume. Locations such as South Bopal, Shela, Shilaj and Thaltej and Science City Road witnessed good sales velocity due to rapidly developing social infrastructure and improved road connectivity

• The adverse liquidity environment and weakening homebuyer sentiment weighed heavily on residential supply as well with new launches falling 23% YoY to 2,627 units during H1 2020. The focus on launching an affordable product remained strong as 75% of the launches occurred in the ticket sizes under INR 5 mn, and the INR 5 – 5 mn ticket size saw 53% of the total launches in H1 2020. 16% of the units were launched in the INR 5 – 7.5 mn ticket size while 3% between INR 7.5 – 10 mn

• Similar to H1 2019, a majority of the units launched during the current analysis period were in the North and West micro-markets at 36% and 30% respectively. The bulk of supply in the North micro-market occurred in locations of New Ranip, Chandkheda, Nana Chiloda and Tragad. In ticket sizes between INR 2 – 5 mn

• Due to the emergence of an alternate business district and increasing office space consumption near SG Highway, nearby locations such as South Bopal, Shela and Thaltej have become strategically important in the Western quadrant of the city for continued residential development. Developers are actively launching projects in this belt as the improving physical and social infrastructure is expected to keep future end-user demand steady. Smooth connectivity to the commercial hubs of Central Business District – West (CBD West) and numerous infrastructure upgrades along the SG Highway have led to intensified new residential construction in these locations. Once considered far-flung when compared to the old CBD, the skyline of the West zone is undergoing a makeover with large scale residential construction

• Unsold inventory levels have fallen almost 69% over the past three years with sales numbers outstripping supply in all periods since H1 2017 as developers have made a conscious effort to reduce existing This has caused the Quarters to Sell (QTS) level to also fall in tandem with steady sales and falling unsold inventory levels from 7.7 to 2.3 quarters in H2 2019. However, the QTS has increased to 2.9 quarters in H1 2020 due to the drastic drop in sales during the period and the comparatively steady unsold inventory level of 9,744 units

• Ahmedabad is among the most affordable residential markets among the eight cities under our coverage and developer margins have been thin here for a very long time. Established developers are well aware of the price sensitive nature of this market and have achieved a fair amount of success in liquidating inventory and maintaining financial health. The pandemic in H1 2020 has pushed developers to negotiate more aggressively with potential buyers on price and payment terms to sustain sales levels. This has caused the average price level to drop 2% YoY in H1 2020

• Increasing incidences of buyers cancelling purchases due to expected income disruptions and banks taking more stringent loan underwriting measures even with homebuyers, have severely curtailed sales. There is little expectation of price increases in the market and this is only encouraging fence-sitters to delay their buying decision and wait for better bargains. This will prove to be a testing time for the Ahmedabad developer as the industry braces itself for the remainder of the year when the disruption caused by the pandemic plays out its course

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