Indian Real Estate Q1 Growth and Trends

Although the operational challenges created by the first and second waves slowed sales volumes in Q2 2020 and Q2 2021, respectively, the Omicron version in Q1 2022 did not affect the residential market, which reached record sales and launch levels during this quarter.

Residential Real Estate Q1 2022

• The outbreak had severely limited human movement, and individuals had been forced to stay indoors for much of the previous two years. It massively boosted the perceived worth of one’s property in the grand scheme of things. When combined with the current low mortgage rates, it spurred and maintained homebuyer interest in the residential market.
• The 78,627 units sold in Q1 2022 represent a four-year record in quarterly sales volumes and a 9% surging YOY. For the third quarter, it substantially surpasses the pre-pandemic average quarterly sales volume, indicating a steady rebound in demand across the country. Demand momentum remained high across markets in Q1 2022, with all markets reporting sequential sales increases except Mumbai, Pune, and Chennai reporting YoY growth. NCR was the greatest mover among all markets, with sales volumes increasing by a whopping 123 percent YOY during the quarter. Mumbai contributed 27% of total sales, the most of any market. Among other major cities, Bengaluru had a similarly impressive performance, with sales increasing 34% year on year to 13,663 units during this period.
• Stamp duty reductions were a crucial intervention used to massive effect by the state governments of Maharashtra, Karnataka, and West Bengal to encourage residential sales during the epidemic. While the cutbacks in Karnataka and West Bengal remain in force, their repeal in Maharashtra had no substantial impact on sales volumes in Mumbai and Pune, where sales have been gradually increasing over the previous three quarters.
• Consistent with the rising trend recorded in the previous three quarters, the percentage of sales in the INR 10 million and above ticket size increased dramatically to 25 percent in Q1 2022, up from 18 percent the previous year. It might be related to homeowners’ desire for bigger living quarters with more amenities. The percentage of house sales in the INR 5-10 mn range fell from 40% in Q1 2021 to 35% in the current quarter. While this may appear substantial, the longer-term trend of sales in the mid-size sector continues to increase in comparison to the share of the INR 5 million and less ticket size, which has deteriorated over time.
• Developers have reacted positively to the shift in homebuyer mood, introducing new projects to capitalize on the spike in demand. In terms of sales, quarterly releases are at a four-year high, increasing by 3% YOY to 78,171 units in Q1 2022. In terms of sales, the units introduced in Q1 2021 outperformed the 2019 pre-pandemic quarterly average by 40%.
• Over the previous several quarters, developers have followed an ambitious pricing strategy with spot discounts, mortgage packages, stamp duty exemptions, and other freebies to tempt purchasers and boost sales. This occurrence got reported to have decreased by the end of 2021, as most market price declines had been halted. The residential real estate market appears to have turned a corner, with all cities reporting a YoY surge in per sq ft prices in Q1 2022. During the first quarter of 2022, prices in Bengaluru increased by 7% YOY, followed by 5% and 4% year on year in Pune and Mumbai, respectively.
• In recent quarters, homebuyers have been increasingly likely to acquire completed or near-ready inventory to reduce completion risk. However, the urgent demand for a lifestyle update has made purchasers more eager to purchase freshly released residences at reduced rates. As a result, the average age of inventories increased to 16.9 quarters in Q1 2022, up from 16.7 quarters the previous year. The market’s unsold inventory has decreased by 1% YOY to 0.44 million units in Q1 2022. The QTS (Quarters to Sell), which had topped 10 quarters at the start of the epidemic, fell to single digits throughout the quarter, reaching 9.1
• The pandemic appears to have healed the residential real estate market lethargy. Low-interest rates, somewhat healthy affordability levels, robust wage growth, and a receding pandemic with less chance of future disruptions have produced a favorable atmosphere for the homeowner who has regained his demand for new and better houses. While financial stress remains a key problem for developers across markets, solid and persistent homebuyer activity should serve as a stepping stone for incremental price rises and allow them to weather increases in crucial material prices like cement and steel.

India Commercial Real Estate Q2 2022

• Since the COVID-19 outbreak struck in Q2 2020, the Indian commercial market has been highly susceptible to the economic changes induced by the virus. However, the severity of its impact has diminished significantly as vaccination rates have increased and fewer limitations on travel have helped the business climate. The third wave, which reached the market in Q1 2022, had a minor impact, with market traction experiencing a considerable YoY increase in transactions and supply activity during the quarter.
• The 1.24 million square meters (10.8 million square feet) sold during Q1 2022 indicates a respectable 25 percent year-on-year gain, even in a period disrupted by the pandemic’s third wave. Notably, this occurred even as the continuing ‘Return to Work’ campaign is hampered by the pandemic. Except for Mumbai, all markets had a YoY rise in transaction volumes, with Ahmedabad, Chennai, and Hyderabad increasing by 165 percent, 124 percent, and 72 percent, respectively. The space transacted in Q1 2022 was 71 percent of the average quarterly volume sold in 2019, a considerable increase from the 57 percent recorded in Q1 2021. During that time, transaction volumes in NCR and Ahmedabad topped the 2019 quarterly average.
• The co-working sector remained popular with occupiers, accounting for 21% of all transacted space in Q1. Co-working businesses were especially active in Bengaluru, which accounted for a sizable 43 percent of total space traded by the industry. Companies in the Other Services Sector were the most active, followed by those in the Information Technology (IT) sector, accounting for 29 percent and 27 percent of the transacted space in Q1 2022, respectively. The OMICRON variation delayed the IT sector’s “back to office” shift, causing several IT corporations to postpone lease choices. However, once the pandemic subsides, the sector’s proportion of transactions is projected to return to its long-term quarterly normal of 35-40 percent.
• Although transaction volumes have increased, rental levels have either steadied or increased sequentially over the last two quarters. Rents have remained flat or risen in five of the eight areas we monitor YOY. Bengaluru, India’s largest office market, saw rental levels surge by 4% YOY.
• New completions have also increased dramatically, with 1.1 million square meters (11.9 million square feet) supplied in Q1 2022, a 13 percent increase YOY. Pune with 0.3 million square meters (3.6 million square feet), contributed 30% of the space provided during the quarter and, together with Bengaluru, accounted for 51% of the total space delivered throughout the year.
• Transactions volumes are inversely related to the perceived severity of the pandemic, with the influence on transaction volumes decreasing with each consecutive wave of illnesses. Despite the uncertainty posed by the Omicron version, transaction volumes in Q1 2022 are three times those of Q2 2021 and more than four times that of Q2 2020. (prior pandemic impacted quarters). As of now, more than 80% of the eligible population received the vaccination. COVID-19 is regarded as a passing phase rather than the possible disaster it was before. As a result, the momentum witnessed in recent quarters may get maintained in the following quarters of 2022 as the market continues its trip toward normalcy.

Key Takeaways

Residential Real Estate

• In terms of sales and launches, the NCR and Hyderabad have recovered from pre-pandemic levels.
• Bengaluru, India’s IT hub, has also witnessed a robust rebound in keeping with the IT sector’s excellent expansion.
• Pricing power is gradually returning, with average price levels increasing YoY in all markets in Q1 2022.

Commercial Real Estate

• Transaction volumes in Bengaluru constituted 33% of total space taken up in Q1 2022, at 0.3 million square meters (3.5 million square feet).
• Rents have remained unchanged or increased in five of the eight markets YOY. Bengaluru, the top office market, witnessed rental levels rise by 4% YOY.
• Rental levels have also remained consistent or increased sequentially over the last two quarters.