Residential real estate finds itself in the storm
The residential real estate recovery in India has been derailed by COVID-19. Residential property sales have almost collapsed since the lockdown. Given the economic impact of COVID-19 and uncertain income/jobs outlook, we believe the path to normalcy could be longer. During the GFC (global financial crisis), it took 16 months for aggregate primary property volumes to recover (some cities took longer). In our base case, we expect a 25% decline in industry pre-sales (and an even sharper supply decline) and pressure on system realisations for FY21.
During GFC, it took 16 months for aggregate property volumes to recover
While investor demand and acceleration in launches helped certain cities recover faster (Mumbai, Gurgaon, Noida, Chennai), cities dependent on end-user demand (Bengaluru, Hyderabad and Pune) and certain products (luxury) took longer.
Realisations to be under pressure; state intervention likely given high stakes
We expect residential realisations to correct over the near to medium term; however price declines are not likely to be more than 15-20% (incremental private funding costs). We think state support is likely (potentially stamp duty cuts) given its dependence on property (direct: 6-10% of revenues).