A lot has changed for India’s realty sector after the Coronavirus pandemic. After weathering the storm in 2020, the sector is now looking towards a recovery. We list some of the factors that could dominate how the real estate market performs in India, in 2021.
1. Flat growth likely in property prices in big cities
After undergoing remarkable change during the 2010s, property prices have witnessed subdued growth, especially in the past four to five years. The prevailing conditions are likely to keep any growth in check. However, while buyers should not expect any significant upward movement, they should also not expect a free fall in rates either. In 2021, property prices will largely remain flat.
2. Interest rates will continue to be low
After generously reducing the repo rate through consecutive cuts, the Reserve Bank of India (RBI) has left it unchanged at 4%, because of high inflation. While any further reduction in rates might not be a possibility, considering the apex bank has to do a tight-rope walk to maintain a balance between boosting demand and keeping inflation within its comfort zone, the chances of the RBI increasing rates are also slim. Home loan interest rates would, thus, continue to hover at the sub-7% annual interest level for a large part of 2021. Buyers planning to benefit from a low interest rate regime must hurry up to complete the transaction.
3. Ready-to-move-in properties will attract more buyers
Ready-to-move-in properties will continue to be preferred over under-construction projects, as buyers look to avoid construction delays and seek homes where they can immediately set up a comfortable and secure space of their own.
4. Some states may lower stamp duty rates
To attract buyers, some states have already lowered their stamp duty rates in 2020. These include Maharashtra, Karnataka and Madhya Pradesh. The reductions resulted in a spike in demand, with property registrations reaching pre-COVID-19 levels in Maharashtra, in the second half of 2020. Lowering stamp duty will, hence, be an important tool to boost demand. Amid several calls for action, many other states like Uttar Pradesh, Haryana and Punjab, may cut stamp duty rates to improve sales.
5. Tier-2 and tier-3 cities and peripheral areas to see value appreciation
As reverse migration enables a large part of the working population to work from their hometowns, more people will settle in tier-2 and tier-3 cities. Since housing developments are typically centred around the city centres, which have space limitations, new real estate developments would come in their peripheries, positively influencing their pricing. The success of these developments will, however, depend on the infrastructure support that the state government provides to these areas.
6. Consolidation to increase, small players to exit the market
If the Real Estate Act (RERA) weeded out a large number of small players from the market, further consolidation in real estate could be expected, with the pandemic severely denting the businesses of several mid-segment builders. These builders may have to shut shop, amid the liquidity crunch and the legal obligation to commit to delivery timelines.
On the other hand, established players with strong financials, will see their footprints increasing far and wide, considering that smaller cities will become the new hotbeds of housing activity.
7. Housing to remain a buyers’ market
India’s realty sector is going to be a buyer’s market for the foreseeable future. This means, developers will have to be willing to negotiate deals, based on terms and conditions that are not tilted in their favour. Amid rising pressure on builders to improve sales numbers, they will also have to devise new strategies to offer cost benefits to buyers. This would be especially true in case of new launches, as the risk involved in such projects is much higher when compared to ready-to-move-in apartments.
