Redevelopment projects, new launches to boost home sales in Mumbai, MMR in 2022

Real estate was amongst the many sectors that bore the brunt of the global corona virus pandemic, leaving the economy in tatters in 2020. But things began to look up for the economy and the real estate sector in particular a year later, as relaxation in lockdowns in many parts of the country triggered a spurt in construction activity. Besides improved housing sales numbers trickling in from several parts of the country, India's financial capital Mumbai and the adjoining MMR also witnessed a smart demand recovery, giving a fresh leg up to many developers

After a resounding bounce back, the big question is will the demand momentum continue for residential homes in the New Year (2022), especially given a rise in cases due to fast-spreading Omicron variant and worries over the imposition of a fresh lockdown by the state to curb the spread? However, despite a pall of gloom over the fresh pandemic spell, developers across Mumbai and MMR are looking at 2022 with lots of optimism. In the coming year, realty developers are looking at several positive factors that could help boost housing sales

Rise in new launches and redevelopment projects

As the concession offered by the Maharashtra state government on premium projects will be coming to an end, the Municipal Corporation of Greater Mumbai (MCGM) has cleared several files up to December 31, 2021. Hence there will be lots of projects with approvals ready to be launched, especially from the second quarter of 2022. These projects will be launched in Mumbai and more particularly in the Western suburbs from Bandra to Borivali. Majority of the launches will be towards redevelopment projects, which will gain traction after moving at a slow pace in the past few years.

RTMI and under construction

In order to boost home sales, the state government had reduced stamp duty for a limited period that gave a major fillip to the Ready-to-move-in home (RTMI) segment. Further, home loan rates available at multi-year lows also prompted many to go for second homes in the city and the suburbs, thus reducing the inventory level to a major extent. With the inventory coming off highs, several under construction projects and new launches shall offer lots of opportunities to home buyers looking for homes in micro markets

Increase in construction cost and its impact

In the last one year, the cost of basic raw materials used for construction purposes and residential projects has increased sharply. Although, cost of raw materials like steel and cement are stabilizing and coming off the recent highs, developers will still have to factor in the cost for their ongoing projects. As a result, the incremental cost will be passed onto home buyers, which could result in an increase in quote rates in the range of 3-7 percent on RERA carpet depending on the closure rates.

Financial discipline, project costs

While the scenario for the realty sector has improved over the past year or so following the lifting of lockdown, it is widely prevalent that the top line growth for developers is almost going to be stable, or at most adjusted only for inflation due to rising costs and other factors. Hence, it will be important for the developers to keep a tight lid on the cost, especially those executing large projects. If sufficient cost is not provided for in such projects, the project could see a longer gestation period and cost increment could see the project showcase negative returns or increase the borrowing cost. However, the Mumbai market is slowly turning into the Cost Plus model as most developers are maintaining the financial discipline and limiting their borrowing costs.

Home loan interest rates and borrowing cost

For home buyers, interest rates offered by several banks were available at historical lows below 6.5 percent, although the rates have marginally inched up in recent times. However, experts suggest that interest rates will not rise dramatically in 2022 and demand for loans will continue to remain strong despite the steady rise. However, with RBI tightening its liquidity position and global central banks discontinuing with the easy money policy, borrowing costs could increase going ahead which shall push up lending rates for both home loans and project finance. According to experts tracking the banking sector, home loan rates could be in the range of 7 percent plus by the end of first quarter in 2022

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