Struggling to tide over the severity of COVID-19 crisis, 2020 remained the most challenging year for Mumbai’s real estate market. While the State government's multiple relief measures aided in marginal recovery, sales and enquiries were still lower than the pre-COVID-19 levels.
Amid the unchanged circle rates, a percentage reduction in stamp duty and various connectivity projects receiving a go-ahead, including the Coastal Road and Mumbai-Nagpur Highway, the residential enquiries in Mumbai spiked in the first two months of Q1 2020. However, the ensuing months witnessed a considerable setback with the Coronavirus outbreak in March. The rapidly growing COVID-19 cases, extended lockdown, mass exodus of construction labourers, disrupted supply chain, negative cash flow and the non-operational local train network stunted the residential demand-supply growth in the city. While transactions bore a significant brunt; launches declined by nearly 47 percent in H1 2020. Barring a few additions by Category A builders, such as Lodha Developers, Godrej Housing, Hiranandani Group, Runwal Group, and L&T Realty, the city's new inventory supply remained low-key. Many developers adopted a cautious stance and deferred their expansion plans to an indefinite period.
Residential supply hits the skid
Niranjan Hiranandani, President, NAREDCO
The issuance of unified DCR will help developers undertake new projects as the new rules are likely to bring uniformity in road widths, which is a positive step. Besides, buildings' height will also vary, depending on the plot size and its Floor Space Index (FSI) potential. The new rules apply to Thane, Navi Mumbai, Pune, Aurangabad, Nashik, Nagpur, Solapur, and Kolhapur. Developers who plan to build multi-city projects will have the advantage of referring to only one DCR. Overall, this will simplify the process and expedite deliveries.
The Q1 2020 started on a positive note as the housing supply in Mumbai improved by 40 percent, YoY. Developers hoping better sales ahead of Gudi Padwa announced multiple projects in Taloja, Kharghar, Karanjade, Panvel, Ambernath, Badlapur, Mira Road, Malad, Andheri, Goregaon and Naigaon. However, maximum launches in these pockets were in the affordable housing (within Rs 40 lakh) and mid-income housing segments as they occupied over 90 percent of the market demand.
The last quarter, too, remained upbeat on the back of the improved home buying sentiment around the festive period. Many builders announced project launches and the number might grow further with the approval of Unified Development Control and Promotion Regulations (DCR).Nevertheless, the ensuing quarter failed to mirror a similar sentiment. With inventory supply in Q2 2020 tumbling by nearly 70 percent against the pre-COVID-19 times, demand remained understated. The Jul-Sep quarter also reeled under pressure. However, with nearly 50 percent of migrant labourers returning to work, resumption of construction activities and developers digitalising their businesses to achieve last-mile project deliveries, new supply improved by approximately 20 percent, QoQ. Besides, the extension of RERA-registered projects by six months, reduction in borrowing rates for construction finance, liquidity support to the NBFCs and the invocation of ‘Force Majeure’ clause for stuck real estate projects also boded well for the market.
Residential demand picks up momentum
Demand for luxury and affordable dwellings has been increasing because of lower interest rates, weakening rupee value, correction in property prices and the influx of people from Middle-East. Additionally, attractive discounts, deferred payment facilities, and REITs' introduction have also accelerated interest from various international communities towards income-generating commercial office spaces providing a safe and significant return on their investments. Hence, along with the housing sector, the demand in the commercial segment has also been growing.
Housing demand in Mumbai remained the worst affected across India. While the conversions in January and February cushioned the market from the impact of COVID-19 in the first quarter, the following quarter experienced a complete washout of housing demand. Deal cancellations or deferment remained a major trend amid companies resorting to pay cuts and retrenchments. It was only from July onwards that homebuyers re-entered the market. The return of genuine homebuyers elated the builder and broker communities. However, homebuyers being cautious explored different projects, which increased the buying cycle from 40-60 days to 90-120 days. This coerced sellers to offer discounts, freebies and easy repayment schemes to retain customers.
The affordable housing segment, i.e. homes priced within Rs 45 lakh continued to perform well followed by mid-income segment projects pegged between Rs 40 lakh and Rs 60 lakh. Ready homes were the most favoured due to rationalisation of GST rates and reduced risk against under-construction projects. Ulwe, Taloja, Dronagiri, Badlapur, Virar, Boisar, Ghodbunder Road and Mira Road and beyond emerged as the sought-after destinations for low-cost units. At the same time, Parel Kolshet, Kharghar, Panvel, Malad, Goregaon and Sion remained the potboilers for mid-segment and luxury projects.
Source: 99acres Mumbai Insite Q3 2020
The extended Credit Linked Subsidy Scheme (CLSS) up to March 2021, unchanged repo rates, rationalisation of risk weights on home loans linked to Loan-to-Value (LTV) ratios contributed to sales revival. Mumbai recorded around 7,000 unit registrations in October, the highest ever registrations in the month in the last eight years. The 2-3 percent stamp duty reduction and festive period of Navratri and Dussehra helped the market fare well.
The average property prices displayed resilience across MMR in 2020. Barring a few developers offering 10-15 percent negotiation to genuine buyers, the overall property prices across the market remained stable in the wake of the existing cost overruns and lean profits attached to projects.
Heightened unsold inventory
Amid the limited offtake, unsold inventory in the city spiked by five percent in H1 2020 and stood at 1.44 lakh units. The Quarters to Sell (QTS) also increased from 9.3 in H1 2019 to 10.8 in H1 2020. Southern and central pockets remained acutely laden with maximum unsold inventory in the backdrop of the homebuyers' increased tenacity towards big-ticket purchases. Besides, deal cancellations and many homeowners putting their properties on sale due to the medical and financial emergencies imposed by the crisis also led to soaring inventory levels.
Languishing business activity post the COVID-19 hit, execution delays and banks re-scrutinising the financial stability of home loan applicants impaired the buying capacity of customers. Across zones, the maximum unsold inventory was in the pockets of Hiranandani Estates, Pokharan 2, Badlapur, Domvili, Ghansoli, Panvel, Kharghar, Lower Parel, Prabhadevi and Vikhroli.
The way forward in 2020
While the home buying trend remained meek in 2020, developers are optimistic of strong sales revival in the months ahead as the COVID-19 vaccine is just around the corner. Besides a host of ongoing infrastructure projects will also pave the way for improved housing demand. These include Metro line 7A, Colaba-SEEPZ metro corridor, Kharkopar-Uran railway line, Bullet Train, Delhi-Mumbai Industrial Corridor (DMIC), Mumbai-Nagpur Highway, and Coastal Road Project.
The MHADA’s plan to build 15,000 low-cost units, special cell constitution to fast-track Kamathipura redevelopment project, a 1,000-crore stress fund for SRA projects and approval to MHADA Act Amendment Bill will also improve the market’s demand-supply dynamics. Additionally, a 13 percent YoY spike in MahaRERA registered projects to 25,190 might also help the market turn corners.
Overall, consolidation of smaller builders with bigger players, Joint Ventures (JVs) and Joint Developments (JDs) would continue as trend in 20201. The process can be compared to the separation of grain from the chaff. Branded developers with a proven track record and financial stability will sustain. Business models will change, and a low-debt ratio with reduced financial implications will be the norm. The industry will continue to seek low-cost financing. ‘Customer-centric’ approach will be the mantra from 2020, which will grow into the future.