Residential sales in India witnessed a strong recovery in 2018, growing by 42% y-o-y with reported volumes of around 137,000 units. This streak continued in H1 2019 with sales in the top seven cities increasing by 22% compared to the corresponding period in 2018. However, sales are yet to match the levels achieved in 2014, which saw an uptake of more than 165,000 units. However, the market continues to be muted, led by weak consumer sentiment.

The government has recently announced a slew of measures to address the severe liquidity crisis lingering in the residential development sector. These include creation of a dedicated fund of INR 10,000 crore with an equal contribution from private investors to provide last mile funding to stuck projects in the affordable and mid-income category, lowering of interest rates on housing building advance that will be linked to 10 year G-sec yield, and relaxation of ECB guidelines for affordable housing under PMAY.

With meagre growth in private consumption expenditure and economic growth slowing to 5% in the first quarter of this fiscal year, the moot questions that arise are:

• Are these measures good enough to revive the housing sector?
• Will residential sales see a strong surge in growth to outpace the momentum seen in 2014?
• What is in store for the upcoming festive season?

Until last year, NBFCs contributed 60-65% funding to real estate developers. After the IL&FS crisis, this funding source reduced drastically. This last mile funding, as announced by the Finance Minister is likely to bridge this gap.

Figure 1: City-wise break up of delayed residential units
Note: Project units launched on or before 2011
Source: Real Estate Intelligence Services (JLL)

It is evident that Delhi NCR and Mumbai together constitute nearly 90% of the delayed projects, thus warranting higher funding requirement.

While the total corpus of INR 20,000 crore stressed asset fund is perceived to be a welcome move, the following critical concerns remain:

• Adequacy of the fund
• Revitalisation of projects that are under litigation
• Establishment of funding sources for raising an equivalent INR 10,000 crore

As 70-80% of homebuyers continue to be dependent on debt to purchase their dream homes, the health of the economy plays a pivotal role. With industrial sector grappling with issues of lower revenue streams and marginal profits, the already high unemployment rate of 7.7% is bound to take a further hit.

While the cumulative 110 bps rate cut in the last four policy reviews favours the Indian economy, credit restructuring measures such as the introduction of repo-linked loans by banks will positively impact the homebuyers’ purchase decisions.

However, a strong surge in sales will primarily hinge on enhanced consumer confidence which in turn will depend upon the effective and uniform implementation of key reforms across all the states. This is in addition to the fiscal and non-fiscal incentives announced by the government to boost sales in the residential segment. The recent reduction of corporate tax rate from 30% to 22% has come at an opportune time, and. is also expected to have a positive domino effect on boosting consumer sentiment.

However, these strong supply side measures need to be backed by corresponding demand side interventions to translate this enhanced sentiment into higher sales in the upcoming festive period.

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