Global economic slowdown, COVID-19 to hit real estate

Global economic slowdown, coronavirus to hit residential real estate demand in FY20

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The global economic slowdown coupled with COVID-19 (coronavirus) pandemic is likely to negatively impact residential real estate demand in the country in current fiscal year, India Ratings has said.

According to the rating agency, residential real estate demand is expected to decline in financial year 2019-20 (FY20) after showing a slight improvement over FY2017-2019.

"Residential demand could remain suppressed in FY21 as well, given the increasing downside risks to the country's economic growth, projected at 5.5 per cent, should the COVID-19 outbreak sustain through first quarter of FY2021," India Ratings said. 

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The agency noted that the demand-side risks combined with rising uncertainty over credit availability for the sector in the light of recent financial market meltdown and increasing risk aversion could add to refinancing as well as liquidity risks for the sector.

"Unsold inventory levels are likely to remain stable at around 14 quarters in FY20 and FY21, supported by limited launches and deferment of launches in view of COVID-19," it noted. 

Of the six key markets, Hyderabad and Pune have the least inventory, while Chennai has the maximum unsold inventory, followed by Mumbai Metropolitan Region as of nine months of FY20.

Residential sales across the top six cities in India fell 4 per cent year-on-year (yoy) to 204 million sq ft in April-December of FY20 from 279.6 million sq ft in FY2019.

The National Capital Region saw the maximum decline in the nine-months period of FY20, while Hyderabad continued with its strong growth momentum in terms of the area sold. 

Furthermore, the affordable housing segment (homes valued up to Rs 50 lakh), which grew steadily over FY17-FY19, saw the maximum decline in April-December FY20.

"The residential sector continues to underperform as an asset class impacting the investor demand," it said.

According to the agency, Grade-I residential players continue to generate strong sales due to the ongoing market consolidation. 

"Pre-sales for top 10 listed players grew about 7 per cent yoy in 9MFY20 to 21.3 million sq ft. However, the sales and thus cash flows for these players could also come under pressure, if the coronavirus outbreak intensifies in the country," it added.

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