If there is one sector that has seen a flurry of activities in the pandemic, it is residential housing. Stamp duty cuts announced by some state governments, unmet demand during the Covid-19 related restrictions in the second half of FY21, and moderation in interest rates of housing loans have given it a shot in the arm. What seems to have also driven the sales is the new normal of work-from-home and study-from-home that spurred the demand for a peaceful, comfortable place to operate from, not just a “dump-yard” where one comes to roof in the night.
The fact is that there was a visible slowdown in the housing market in the first quarter of 2020-21 when the Covid-19 pandemic and the subsequent national lockdown hit economic activities in the country. During the third and fourth quarter of FY21 (October 2020-March 2021), residential housing property registration and sales across major cities exceeded their pre-pandemic average levels.
According to the Reserve Bank of India (RBI)’s recent Financial Stability Report, unsold inventory levels have dropped steadily in the last four quarters to around seven lakh, a two-year low, as on March 31, 2021, from around 8.5 lakh in the first quarter of FY21. Launches of new units have progressively gone up in the last four quarters to over 6 lakhs in Q4 of FY21.
Unsold inventory is a direct reflection of the health of the market. The RBI report said the all-India House Price Index (HPI) increased year-on-year by 2.7% in the fourth quarter vis a-vis 3.9% growth a year ago. On a sequential quarter-on-quarter basis, all-India HPI growth rate moderated to 0.2% in the fourth quarter of FY21.
“Although the level of housing inventory remains elevated, it has come down in the recent period due to lower new launches in relation to sales; new launches in premium and sub-premium categories, however, remain robust,” said the report.
According to Niranjan Hiranandani, national president, National Real Estate Development Council (NAREDCO), buying of homes has continued despite the second wave, albeit at a slowing pace. “It is a situation where residential real estate sales show resilience, but the impetus is declining,” he tells Fortune India.
According to Hiranandani, the triggers that powered the surge in home buying during “Mission Unlock and beyond”—the second half of 2020-21—are very much in existence, be they historically low home-loan interest rates or demand and deal sweeteners from real estate developers. “Turning around the slow home buying can come from support on the policy front, with measures like stamp duty rate reduction or circle rate reduction. We have seen how this move from Maharashtra became a win-win, not only for home buyers and other stakeholders, but also the state government’s revenue collection—plus, it gives a boost to economic growth,” he argues.
Fall in interest rate has been an additional sweetener.
After the Reserve Bank of India (RBI) cut the repo rate (the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds) continuously for five times, the last being in May 2020, it continues to remain at 4%. The central bank slashed the rate by 250 basis points in 15 months—between February 2019 and May 2020—to revive the economic growth and mitigate the impact of Covid-19.
Banks such as State Bank of India, ICICI Bank, Axis Bank, Bank of Baroda and HDFC Bank, and home financiers such as HDFC have cut home loan rates to make it competitive in the market, though with a lag.
Y. Viswanatha Gowd, managing director & CEO of LIC Housing Finance, points out, “In a post-pandemic world, the necessity and comfort of a personal space has driven many individuals to advance their home buying decision.”
He said given the impact of the pandemic, LIC wanted to offer an interest rate that would help uplift the overall sentiments and aid more individuals to fulfil their dream of owning their home. At 6.66%, LIC Housing Finance, one of the largest housing finance companies in India, has offered its lowest ever rate of interest on housing loans with a maximum tenure of 30 years.
The new rate announced on July 1, under a special limited period offer, will be available for people getting their loans sanctioned till August 31, 2021, provided the first disbursement is availed on or before September 30. The home loan rates now start from 6.66% for loans up to Rs 50 lakh for salaried individuals. The rate of interest offered is linked to the borrower’s creditworthiness, as reflected by their Cibil scores.
“We hope that this reduction in home loan interest rate will further boost customer confidence and help in early revival of the sector,” said Gowd.
While bank credit growth showed a subdued growth, growth in home loan has helped the retail loan portfolio of banks, though with a minor dip. According to the RBI report, lending to private housing finance companies (HFCs) rose during the last two quarters coinciding with the surge in sale of residential houses during October-March (H2 of FY21). In April 2021, however, bank exposure to HFCs contracted, said the report.
The real estate industry officials have pointed out that momentum of flat sales reported in the fourth quarter has continued into the new financial year. As per Anarock, a real estate consultancy, housing sales in the first quarter of FY22 stood at around 24,570 units across the top seven cities, an annual increase of 93%.
Officials believe that with the state government boosting their vaccination campaigns and easing up local restrictions, the industry is likely to see another year of growth.