The overall residential demand is expected to decline by over 25 per cent year-on-year in the current financial year FY21 due to ongoing COVID-19 pandemic after registering a fall of 5 per cent in FY20, according to India Ratings and Research (Ind-Ra).
A stable demand combined with prudent launches by players had restored some supply-demand balance over FY18-19.
However, the COVID-19 related lockdown resulted in a rise of unsold inventory levels to over 15 quarters at end-FY20, said Ind-Ra in its latest credit news digest on India's residential real estate sector.
Of the six key markets, Hyderabad and Bengaluru had the least quarter to sell inventory while Chennai had the maximum unsold inventory followed by Mumbai Metropolitan Region as of FYE20.
Residential sales were down 5 per cent year-on-year to 266 million square feet in FY20 across the top six cities in India. National Capital Region has seen the maximum decline in FY20 while Bengaluru saw a recovery.
Hyderabad continued with its strong growth momentum in terms of the area sold. Besides, the affordable housing segment (homes valued up to Rs 50 lakh which grew steadily over FY17-19 saw the maximum decline in FY20.
The residential sector continues to underperform as an asset class, impacting investor demand. Hyderabad is the only market which has shown a price CAGR of a high single-digit, while the other markets have lagged behind with sub-par price CAGR of 1 to 2 per cent over the last five years.
Moreover, disbursements from housing finance compes and wholesale non-banking financial compes to the real estate sector declined steeply in FY20. However, there was a slight uptick in the last quarter in disbursements by non-banking financial compes based on Ind-Ra estimates.
Grade-I residential players continue to generate strong sales due to the ongoing market consolidation. Pre-sales for the top 10 listed players grew about 7 per cent in FY20 to 32.3 million square feet.
However, the agency believes that the sales will be hampered until the ongoing Covid-19 situation stabilises, and thus cash flows for these players could also come under pressure.
A recent publication by the Reserve Bank of India on Consumer Confidence Index and Future Expectations Index in May suggests changes in consumer sentiments and expectations of Indian people.
Historically, Ind-Ra has evidenced a spill-over effect on real estate when these indices had dropped. Ind-Ra expects a longer-than-expected time to recovery for the real estate sector based on the steep drop indices in May.
( With inputs from ANI )